A sudden need for cash almost always arises. It might be something urgent, such as a medical bill, school fees, or house repairs after unexpected damage.
For many, the two most accessible choices are either a personal loan or a credit card cash advance. While both options provide money without requiring security or collateral, they are not identical. In fact, they operate quite differently and can affect your finances in ways you might not expect. Read on to understand how to pick between a personal loan and a credit card cash advance.
Understanding Personal Loan
A personal loan is what most people turn to when they need a decent amount of money such as ₹1 lakh or more. You apply with a bank or NBFC, submit your documents, and the money is credited to your account. You repay this loan over a fixed period through monthly instalments.
These instalments include both principal and interest. The rate of interest you get depends on your credit profile, income, and the financial institution’s internal policies.
You don’t need to offer any asset as security. That is why it’s called an unsecured loan.
Understanding Credit Card Cash Advance
Most credit cardholders are aware that they can use their card to make purchases online or by visiting physical stores. However, many are also aware that cards enable you to withdraw cash from ATMs up to a certain limit. This is called a cash advance.
However, it is important to keep in mind that cash advances come with some of the highest costs. Interest is charged from the moment you withdraw the cash. There is also a withdrawal fee, which is a percentage of the amount you withdraw. And there is no interest-free period, unlike regular card purchases.
Personal Loan vs Cash Advance
While both options offer quick cash, the impact on your financial health differ significantly. Here is what to keep in mind:
| Criteria | Personal Loan | Cash Advance | Keep in mind |
| Speed of Access | Takes at least a few hours to a couple of days, depending on how fast your documents are verified and approved. | Instant, assuming you already have a card with enough limit. | If you are at an airport stuck in an emergency, a personal loan won’t help much. However, if you can wait until tomorrow, a loan could save you a significant amount on interest. |
| How Interest is Applied | Interest is applied on the outstanding principal, and EMIs are fixed. Over time, as your principal reduces, the interest portion gets smaller. | Interest starts accumulating from the moment cash is withdrawn. It is usually charged per day and doesn’t reduce unless you pay in full. | People often underestimate how quickly a ₹10,000 cash advance can escalate into a significantly larger bill. |
| Repayment Terms | You can choose your tenure from 12 months, 24 months, or even up to 60 months. EMIs are consistent, and you may even be able to prepay if your financial provider allows it. | There is no EMI structure. You must pay it as part of your next credit card bill. If you do not, interest keeps accumulating and your card usage limit is affected. |
When Should You Choose a Personal Loan?
Let us now examine practical scenarios in which opting for a personal loan is more advantageous than using a credit card cash advance.
You Need a Large Amount
If you are planning a wedding or home renovation requiring ₹1.5 to ₹2 lakh is not unusual. Utilising a credit card for such an amount would not only exhaust your available limit but also incur exceptionally high interest charges. In contrast, a personal loan is a more prudent option, particularly when you intend to extend the repayment period.
You Need Time to Repay
If you cannot repay in one or two months, a loan allows you to repay through manageable EMIs. You will not feel financially pressured and you can match your repayment with your income cycle.
You Want Predictability
Many individuals prefer to know the exact amount they need to pay each month. With EMIs, payments remain consistent, unlike credit card bills, which can vary significantly based on usage.
You Are Planning to Consolidate Debt
If you have multiple credit card balances, you can opt for a personal loan to pay them off and be left with just one EMI at a lower rate. This can make your finances easier to manage.
When Does a Credit Card Cash Advance Make Sense?
While it is often not the ideal option due to cost, there are some situations where it helps.
Time-Critical Situation
If you are travelling and your debit card is not working. Or if a merchant refuses card payments. In such cases, you can utilise a cash advance by withdrawing money instantly.
You Need a Small Amount for a Few Days
Maybe your salary will get credited only after five days, and you need ₹3,000 for a short-term requirement. If you are confident of repaying this amount in a week, a cash advance will work. It is important to not make this a regular habit.
You Don’t Want to Apply for a Loan
Sometimes you don't want to apply for a loan and sort out paperwork, go through approval processes, and credit checks. If your requirement is very short-term, a card might be hassle-free.
Warning Signs and What to Avoid
Here is where people often make mistakes, regardless of which option they choose.
Borrowing More Than You Require
Just because you qualify for a ₹2 lakh loan doesn’t mean you should take it. Always calculate how much you actually need and how easily you can repay it. Borrowing in excess creates unnecessary repayment pressure.
Using a Credit Card Like a Loan
Cards are meant for convenience, not for long-term borrowing. Taking cash from your credit card too often is not a good idea. The interest is simply too high to justify regular use.
Ignoring the Small Print
Every borrowing option comes with conditions. Personal loans may have processing fees or prepayment penalties. Credit card advances come with flat withdrawal fees and interest from day one. Always check the terms and read documents carefully before making a decision.
Final Thoughts
The most important part of making this decision between personal loan vs cash advance is understanding your current need and your future repayment capacity. Don’t borrow based on how fast you can get the money. Borrow based on how realistically you can return it. For planned or larger expenses that require more time to repay, opting for a personal loan from trusted lenders like Shriram Finance is advisable.
If it’s a one-time, immediate need and you’re very sure you can repay quickly, a cash advance may work. But whichever path you take, have a clear repayment plan.
