Cash advances, or short-term loans, can range from just a few hundred dollars to thousands depending on your credit limit. While it’s often possible to find an ATM or lender who will provide you with a cash advance, the costs associated with them tend to be much higher than those associated with other forms of borrowing.
Before taking out a cash advance, it’s important to consider all your options and weigh the pros and cons of each option, such as taking out a personal loan or asking friends and family for help.
Cash Advances: What Are They?
A cash advance is a short-term loan offered by credit card companies that allow customers to access quick, short-term funds. This form of borrowing usually comes with a much higher interest rate than regular purchases made with a credit card and is often used for emergency expenses or when other forms of financing are not available.
The amount borrowed must be repaid in full plus interest within a specified period, which can vary depending on the lender. Cash advances are an incredibly convenient way to cover unexpected costs, but it is important to remember that they can be extremely costly if not paid back promptly and in full.
How Do Cash Advances Work?
Cash advances are a quick and convenient way to access cash when you need it, though there are some downsides to consider. If you have a credit card with a pin, you can use your pin number to withdraw cash from an ATM, though this will likely incur ATM fees. Alternatively, if your credit card issuer has physical branch locations, you can request a cash advance from an in-person teller.
Finally, if you have the option for checks with your card issuer, writing out a check to yourself and cashing or depositing it is an option as well. It’s important to note that not only do cash advances generally carry higher interest rates than regular purchases made with your credit card, but also that interest starts accruing on the cash advance amount immediately. For these reasons, it’s important to carefully consider whether a cash advance is a right choice for you before proceeding.
Interest Rates on a Cash Advance
Your regular purchase APR is usually much lower than the interest rate on a cash advance, which can be as high as 30% or more, making it one of the highest interest rates available. Unfortunately, there is no grace period for this type of loan, so you’ll begin accruing interest at this inflated rate immediately.
You should look at your card’s terms and conditions to get an exact figure on the interest rate you’ll pay for a cash advance. It’s important to remember that while getting access to quick cash may provide a short-term solution to financial instability, it can also lead to expensive debt if not paid off quickly enough due to the high interest rate associated with this type of loan.
Credit Lines on a Cash Advance
A cash advance credit line is a great way to access extra cash when needed. The amount that you are able to take out varies depending on your credit card and the issuer. Generally, it is usually a percentage of the card’s total credit limit, allowing you to have access to some extra funds when needed instantly. However, it’s important to keep in mind that this money is still coming from your available credit limit on the card and, when taken out, will reduce what can be used for making purchases.
Therefore, if you decide to take out a cash advance credit line, make sure you pay it back quickly so as not to reduce your available credit limit too much.
Why Are Cash Advances So Expensive?
Cash advances are expensive to access cash in a pinch, as they typically come with additional fees and costs. Here are some of the reasons why cash advances are the most expensive option.
Fees for a Cash Advance
Typically, these fees come in two forms: a flat fee or a percentage-based charge. For the flat fee, you may be charged a set amount such as $5 or $10 per cash advance transaction. On the other hand, a percentage-based charge will be based on the total amount of the transaction and can range anywhere from 1-5 percent. In some cases, you may be charged whichever is greater between a certain fraction or fixed dollar amount; for example, 3 percent or $10.
It’s important to understand what your specific card issuer charges for cash advances so that you can factor this into your budgeting and plan accordingly when using this service.
ATM or Bank Fees
When making a transaction at an ATM or obtaining a cash advance, the financial institution responsible for handling the transaction has certain terms and conditions that must be adhered to. These terms and conditions can vary depending on the bank or ATM owner, but typically include limits on how much money can be withdrawn in a given period of time, as well as any fees associated with the transaction.
Some banks may also have requirements for minimum balances in order to access funds from ATMs or receive a cash advance. These regulations are necessary in order to ensure that customers are using their accounts responsibly and avoiding fraud or misuse.
Cash Advances can be an expensive way of borrowing money because most credit cards charge a much higher interest rate on cash advances than on purchases, so the cost of borrowing this way quickly adds up. Additionally, interest on cash advances starts accruing immediately and there is usually no grace period, compounding the loan’s total cost.
Are There Alternatives to a Cash Advance?
It happens to all of us. Sometimes we find ourselves in a cash bind and need money fast. However, if you wish to utilize something other than a cash advance, there are some alternatives. We will list the other options below.
Taking Out a Normal Loan
One option to consider if you find yourself facing a cash crisis is taking out a loan from your local credit union or bank. A loan could be more cost effective than a cash advance in the long run, as credit unions and banks typically offer better interest rates and repayment terms. You can also negotiate flexible repayment schedules for your loan, which can help make payments more manageable.
Additionally, some loan lenders may offer hardship programs that reduce the amount of money owed back on your loan or waive late fees. It’s important to shop around to get the best deal possible and to read over any contracts carefully before signing any loan agreements.
Open a Short-term or Low-interest Line of Credit
Another option is to open a short-term or low-interest line of credit with your existing bank or credit union. These lines of credit often give you access to emergency funds at lower interest rates than cash advances and payday loans, so they’re worth exploring.
Last Resort Options
Lastly, consider researching other types of lenders, such as pawn shops, title loan companies, peer-to-peer lenders, and online loan providers. Each of these can come with different risks and benefits that you should weigh when deciding.
Cash Advance FAQ’s
Will I be Able to Pay Back the Cash Advance by My Next Payday?
When considering a cash advance, assessing your ability to repay the loan by your next payday is crucial. Understand that the repayment amount will reduce your next pay check, so budgeting for this is essential.
Does a Cash Advance Affect My Credit Score?
A cash advance can potentially impact your credit score. If the lender performs a hard credit check during application, it may temporarily lower your score. Failing to repay the cash advance on time can negatively affect your credit score, as many lenders report late or missed payments to the credit bureaus.
Is my Cash Advance Lender Trustworthy?
Establishing the trustworthiness of your cash advance lender is crucial for your financial security. You can verify their credibility by checking if they’re registered with your state’s Department of Financial Institutions or a similar regulatory body.
Look for online reviews and testimonials about the lender’s services, but be wary of overly positive or negative reviews. Also, ensure their website is secure (URL starts with ‘https’) to protect your personal information. If a lender doesn’t clearly disclose all terms, conditions, fees, and interest rates, it’s a red flag. Reputable lenders are transparent about these details.
How Much Will the Cash Advance Cost?
The cost of a cash advance can vary significantly based on the lender’s terms and the amount borrowed. Generally, they are known for their high-interest rates and fees. The total cost will include the principal amount borrowed, an interest charge, and often additional fees like origination or transaction fees. Some cash advances also have high late payment fees.
What is Risky About a Cash Advance Payday Loan?
Cash advance payday loans can carry significant risks. They typically come with high interest rates and fees, which can lead to a cycle of debt if not repaid promptly. If you’re unable to repay the loan by your next payday, you might need to roll the loan over or borrow more money, leading to additional fees and interest.