Five Common Forms of Cash Advances

A cash advance is a type of loan payable within a short period as per the agreement between the lender and the borrower. It is meant to meet the short term immediate needs of the borrower. These loans are available to individuals and business owners whether large or small. Cash advances are attractive to borrowers because they are quick and easy to obtain. However, they attract very high-interest rates. Some advances are based on mutual trust between the lender and the borrower. 

Among the common forms of cash advances include: 

Credit cards. 

These are the most common forms of cash advances. They are issued by commercial banks or other deposit taking institutions. Usually, an account or non-account holder is issued with a card which is a form of a line of credit. The cardholder can withdraw money from the ATM or the counter depending on the terms of the agreement between the lender and the borrower. Credit card advances attract very high-interest rates which in most cases begin to accrue immediately. Additionally, they attract a fixed annual fee. 

Direct deposit advances. 

These are short term loans issued and deposited directly into the borrower’s account. Here the amount is fixed and predetermined and the interest rate and repayment period agreed. The lender could be a bank or a savings and credit co-operative society (SACCO). 

Soft loans from family and friends. 

These types of cash advances are purely based on mutual trust. The borrower approaches a close person in case of an emergency and they agree on the amount of the loan and the interest to be charged. In this case, the interest may not be as high as that of a credit card direct borrowing. They are very flexible and common if the amount in question is small. In some cases, they may be interest- free. 

Group advances. 

These are informal advances. In some cases, people with a common bond may come together and form a group. Their objectives could be the social welfare of members, savings, investments, or lending. Normally, they develop a constitution detailing the borrowing terms. In case a member has immediate cash needs, he can be issued with a loan secured by the deposits or group contributions. 

Employer cash advances. 

An employee may encounter a cash emergency before the payday. He approaches the employee for a cash advance which is deducted from the salary at the end of the month. There is usually a policy regarding this kind of facility, for instance, the due date of application and the limits. 

Emergencies are inevitable whether at home or in a business environment. There are several cash advances that one can consider in case of a need and get to solve immediate problems. As we have seen, interest-rate differs depending on the source and the prevailing circumstances.  If one wants to avoid high-interest rate charges which come with credit cards, he can consider cheaper alternatives like group loans or loans from friends and relatives. Other sources of cash advances include trade credit, bank overdrafts, invoice discounting and commercial paper. 

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