Although a cash advance may appear to be a fast and easy way to access cash, it is a last resort. Getting a cash advance with a credit card is an easy and efficient solution to the financial crisis of the moment. But it is not always the best choice.
Cash advances are temporary loans that you can get against the card’s credit line. Although it could appear to be the best option for those who need cash quickly and don’t have other money, it’s a costly type of debt that needs to be avoided as often as possible.
Cash advances allow you to cash out your credit card just as you would withdraw cash from your debit card:
Suppose you own a credit card with a PIN and want to use an ATM to receive a cash advance, just as you would for the debit card. You’ll likely have to go to the bank or credit union to request an advance in cash to the credit card. The representative will verify the card, and either the institution or credit association or the credit card issuer could impose charges – before handing the cash you requested.
Suppose you make cash advances that you’re using the credit card’s balance to obtain a cash advance. This type of transaction is different from regular purchases. Your credit company will be charged a different interest rate.
Here are the standard conditions and charges for the cash advance with a credit cash advance on a card:
Terms for cash advances on credit cards and fees vary depending on the credit the issuer. Here are the fees and terms for the most reputable issuers’ most popular cards:
The primary benefit of cash advances lies in their convenience. However, cash advances are expensive.
Let’s suppose you have an available credit allowance of $2,500 with an amount of $1,000 already charged, and you make cash advances for $700. In the event, it’s this Capital One Quicksilver Rewards card that you’ll be charged an additional $21 plus 24.99 percent variable APR on that $721 right away. If you’re using this card, the Citi Custom Cash Card, you’ll pay a 25.24 percent APR variable on $735 on the first day.
In the context of credit reporting, the cash advance is considered the same as your other credit card debt. This means it will not show up on your credit report as a separate item. However, it will affect your credit.
“A cash advance could affect your credit score if you take out too much cash,” says Howard Dvorkin, CPA, and chairman of Debt.com. “The greater the amount of cash that you can withdraw and the more close you be to achieving the limit of your credit limit. The use of your credit limit to the maximum credit or using more than 30 percent or more of the credit limit could harm your credit score.”
Since the cost of interest and fees for cash advances can quickly add up, they can quickly increase the credit usage ratio, mainly if the credit limit on your credit card is not sufficient.
“To aid in protecting your score … check to see if the credit card company will raise your credit limit if you need to perform the cash advance,” Dvorkin suggests.
It’s not surprising that having to pay for cash but having no money available can be an awful feeling that can cause anxiety. In times of emergency, it can be crucial to have funds available immediately regardless of the financial or credit consequences.
Another option is a personal loan. The typical individual rate for a loan is 9.58 percent and is significantly less than the APR of the credit cash advance from a credit card. Even if your credit rating isn’t in top shape, you’ll likely get personal loans with an interest rate lower than a cash advance.
It’s also convenient to pay back the loan over time with fixed installments instead of having to worry about accruing interest fees and damaging the credit use ratio. Additionally, you may be able to obtain an even more significant amount, as cash advances typically are restricted to a couple of hundred dollars.
It’s tremendous stress when you need money urgently, but you don’t have any. If you don’t have an emergency fund or savings, you might feel that there are no alternatives. However, cash advances are best considered as an emergency option.
If you’ve thought about the options and came to the conclusion that you do not have cost-effective alternatives, be sure to determine the exact amount a cash advance is going to cost you and then create an action plan to pay it back in the shortest amount of time.