Cash Advance vs Personal Loan in Singapore: What Should You Choose?

You might find yourself in a situation where you desperately need cash. In some of these situations, you might need more cash than what you have available in your checking and savings account. Your debit card just doesn’t have enough to cough up. You may think to yourself, “if I take my credit card to an ATM, I can use it to get a cold, hard cash advance.” But, you need to be wary–it will cost you and there are better options.

First, you need to know what you’re accepting. Although they might be convenient, cash advances are extremely costly, and could cost you a fortune even for a small sized loan. Unless you need the cash immediately, we recommend you to consider other options, like personal loans. To illustrate why this is so with stone-cold facts and numbers, we have prepared an example case below.

Cash Advance vs Personal Loan: Example Calculation

Let’s assume Bob needs to borrow S$5,000 in cash right now. He is considering if he should take a personal loan, or to simply go to an ATM to use his credit card for a cash advance. S$5,000 isn’t too much money that he can’t handle as a loan, but he also thinks he wants to take his time paying it off over a year. Let’s see how this would actually work out in practice.

According to our study, average cost of personal loan in Singapore is about 6.99% (excluding a one-time processing fee that ranges from 2% 4%). Because personal loans come in a form of fixed monthly payment, you have to pay a monthly interest of S$29 (S$5,000 x 6.99% divided by 12 months) plus principal repayment of S$417 (S$5,000 divided by 12 months) for a total of S$446 monthly payment. At the end of the 12 months, you end up paying S$5,350 in total including S$5,000 you initially borrowed and S$350 in interest.

In contrast, cash advance shows a much worse picture. According to our study, average cost of cash advance in Singapore is about 28% (excluding 5-6% of one-time fee). This is already higher than the usual 25% charged by credit cards in Singapore, and is almost 4 times higher than rates offered by personal loans. If you try to pay off this debt in a similar way as the method we described above for personal loan, you will be in trouble.

For one, not only are you getting charged at a higher rate, but you are also getting charged interest on cash advance daily, so you start getting interest charges on the first day. Therefore, you start off paying S$115 just in interest in your first month. Even as you pay S$417 (S$5,000 divided by 12 months) every month plus interest, you are unable to pay down your loan after a year because so much interest has built up. After a whole year paying interest, fees and principal, you still end up with almost S$900 of debt remaining that you need to pay off.

On top of this difference, add another factor of application or processing fee. Personal loans have processing fee that ranges from 2% to 4%, though it sometimes comes in a form of fixed payment of S$80 to S$200. Cash advances charge 5-6% or S$15, whichever is higher. Even if we are to assume that personal loan charges a fee of S$200, it’s only about 4% on the principal amount of S$5,000. This pales in comparison to cash advance’s 5-6% fee, which can be up to S$300.

After just one year, you end up paying S$1,186 just in interest and fees for a cash advance of S$5,000, after which you still have almost S$900 of debt to pay down. In contrast, a personal loan of same amount will have cost you only S$550 and you will be free of debt after the year is over.

From our example, it’s quite obvious that personal loan is a much more superior option to acquire cash than cash advance. However, personal loans do take a few hours or a day to get approved, and you cannot pay it back quickly whenever you want. Therefore, cash advance might not be a bad idea for people who are just looking for a few hundred dollars immediately, and can also pay it back right away within weeks (if not days).

Who Should Choose What?

Unlike cash advances, personal loans are a great way to finance your emergencies if you can wait a day or two. Because personal loans come with low interest rates and fixed monthly payments, they are a much better tool than cash advance to finance your emergencies that may require a meaningful sum of money. If you are interested, we've compiled a list of the best personal loans in Singapore to help ease your process. Below, we have prepared a summary table of who might want to use cash advance and who might prefer to use a personal loan. You can also read our comprehensive guide on personal loans and study on average cost of personal loans.