Cash advances are an immediate and quick way of dealing with urgent financial crisis especially if the amount in question is small. You could be faced with emergencies from time to time, could be a sickness, need for shopping, or emergency orders from clients. You can conveniently use your credit card or even approach a group of which you are a member and apply for an emergency loan to sort out this. It sounds quite simple and interesting, but where is the catch? Cash advances may not be good for you for several reasons:
These loans are expensive- The interest rates for cash advances are usually high. There is no grace period for such loans. credit card will attract fixed charges over and above the normal interest rates. If you use these loans for business purposes, it may not be profitable. In some cases, the profit you generate may not be enough to pay off the loan.
Risk of Fraud- Due to increased rates of cybercrimes in the recent past, credit cards are prone to manipulation; passwords can be hacked and you can end up losing a lot of money which you have to pay the card issuer. Some people have a tendency of carrying the card always which also increases the risk of loss or theft.
They attract early repayment penalties- Interest on cash advances begins to accrue as soon as you receive the money. If interest is payable every month and you pay your loan before the due date, you end up paying the same interest which you could have paid if you waited for the 30 days. This is aimed at compensating the lender from the facility.
Risk of acquiring a borrowing cycle- Remember you acquire these cash advances fast and conveniently. You can find yourself trapped in regular borrowing. You may find yourself paying borrowing from one source to offset another due loan. This is high-risk borrowing which may negatively affect the efficiency and productivity of your business.
Cash advances are not sustainable in the long run- You may find yourself in a habit of acquiring short-term loans to cover business expenses. Remember your business should be productive enough to cover all its expenses and at the same time pay you. With cash advances, you may not achieve your goals.
The ultimate decision to obtain cash advances rests upon you. Remember that the lenders are out to make money by lending to you and that is why they have made it easy for you. You can quickly walk to your bank and acquire that credit card or approach another lender and get the money on the spot. You can easily get trapped into these advances and find yourself not in a position to manage your finances well. More so, it is very risky to obtain cash advances to meet your business needs. You should have a long term vision for your business but short-term loans are not a solution. Avoid cash advances as much as possible unless it is inevitable.