What is a Cash Advance and How Do They Work?

What is a Cash Advance and How Do They Work?

For all we know, a cash advance is a method of utilizing your credit card to get instant cash in no time. Different from usual cash withdrawal from your account, cash advance require to be repaid, identical to how you would use everything on your credit card. Simply put, it is a costly technique to “purchase” cash, instead of products and services.

What is a Cash Advance?

A cash advance is a short-term loan obtained from a bank or other lenders. It also can be defined as a kind of service that allows credit cardholders to cash out an amount of money. Even though it is a convenient approach to getting money, it comprises high-interest rates and fees. Hence, this is why it appeals to a great crowd for quick financing.

There are several types of cash advances. There are credit cash advances, merchant cash advances as well as payday loans. A common feature amongst all is the costly interest rates and fees.

How Does Credit Cash Advance Work?

The most popular kind of cash advance is credit cash advance. Essentially, it is a way of borrowing credit values using your credit card to get cash. This is done by withdrawing money at an ATM, from a deposited cheque for some credit card issuers or cashed through a bank. This cash advances as usually preferred since it only involves getting advance cash using a credit card through a card PIN.

Credit cash advances usually have a high-interest rate. One will have to pay an average of 24%, which is approximately 9% higher than regular APR for purchases. More to note, there is no grace period with credit cash advances as the interest builds up immediately. This also involves using your available credit limit to get the advance cash credit.

Usually, you may attain your credit cash advances through a few different ways, which are:

  • At an ATM. If you own a PIN for your credit card, you may directly cash out the amount of money you wish for in accordance with the limits withdrawable from the ATM. If you do not, you may request a PIN from your card issuer and receive it in up to a few working days.
  • In-person. You may visit the nearest bank of your credit card issuer and request a cash advance with your card.
  • Convenience check. You may get your cash advance through a deposited check if your credit card comes with convenience checks.

Cash Advance Terms and Fees You Should Remember

It is important that you first and foremost be informed of the charges you may have to endure when making a cash advance. It might be an easy way of getting cash, it is quite exorbitant, nonetheless. But you’ll get into a debt cycle once you do on a daily basis or much too often.

  • Cash advance APR. You will expect a separate and steeper interest rate with cash advance in comparison to regular purchases or balance transfers. As an instant, the Citi® Double Cash Card exerts 13.99% to 23.99% variable APR for regular purchases and balance transfers, meanwhile the percentages fee hike up to 25.24% variable APR for cash advances.
  • Cash advance fee. Your credit card account service provider will typically charge you a fee every time you request a cash advance. This may vary from 3% up to 5% of the overall amount.
  • ATM or bank fee. ATM charges or bank fees may be incurred for taking out a cash advance.
  • NO grace periods. Cardholders do not benefit from a grace period with cash advances. In short, charges for your interest fee will accumulate immediately once the transaction is done. Unlike when you make a regular purchase, you may benefit from having a grace period of at least 21 days if your due balance is paid on time.
  • Separate credit limit. Cardholders might only be allowed to cash out a few hundred dollars due to the separate credit limit that holds only a part of the total credit limit.

Reasons Why You Shouldn’t Use Cash Advance on Credit Cards

Confused Guy Thinking About Cash Advance

As have been repeatedly said earlier on in the article, although it is extremely easy and fast to get cash with this cash advance, you also would have to put up with hefty fees and interest rates. Thus, this is why you should not use cash advance on your credit cards:

  • High-interest rate. With higher interest rates than with regular purchases or balance transfers, it might be worth it that you make a comparison with various low cash advance rate before considering taking out cash.
  • Attracts an additional fee. Cash advance fee is commonly more substantial of $15 or 6% of the total requested amount. This means that if one withdraws a value $1,000 from an ATM, one will pay a fee of $60.
  • No interest-free days. Your interest fees build up immediately by the day your transaction is made and done. It grows from day one, hence, you will likely pay higher interest than with regular purchases.
  • No points. Different from other credit card services’ terms and conditions, you are not eligible to earn rewards and frequent flyer points with cash advance proceedings.
  • Credit card payment allocation. If you have an existing balance from your regular purchases or balance transfers, the cash advance proceedings will be prioritized and paid back before others once you make your credit card repayments.
  • Foreign currency transaction fees. One may need to endure even higher of the overall cost of the cash advance when making transactions abroad. This is due to the charge of currency conversion in foreign ATMs.

Are There Alternatives to Use Cash Advance?

In these difficult times, a cash advance may seemingly sound like an appealing solution. Getting cash in no time, not involving complicated procedures, does not require one to travel much nor go through head aching processes.

Even so, it is highly encouraged that you find out other ways to attain cash in taking over your financial bump. This is because a cash advance may lead you to be trapped in a spiral of debt in no time.

Below could be some of the ways to act as an alternative to cash advance:

  • Borrowing from family or friends. This may sound awkward or for some people, it may get to an extent where people think it would hurt their pride. With that said, although you could be quite anxious to ask for it, it is one of the most cost-efficient methods for a quick financing. Ensure that you design a good repayment plan. This is to keep the fondness of the relationship in the long run.
  • Taking up a short-term loan. In any case of urgent needs of cash, you can read up and make a research regarding short-term loans, that is often called a payday loan. Some lenders can even get it worked out for you and approve your application in just 30 minutes. What is more, the interest rates may be quite similar as taking out a cash advance is. In spite of that, it is worthwhile to read extensively and compare lenders with the payday loan terms that would suit your condition the most.
  • Taking up a personal loan. Typically, a personal loan is inexpensive than a cash advance and a short-term loan. Terms and conditions of different lenders may vary. Some may process your application in just one day, while others may take up a few working days for approval. Once passed, the loanable amount will be transferred to your account and is withdrawable. Cashing out from an ATM will not add up to the cash advance fee.
  • Cashing out through a debit card. In regard to ATMs, cash withdrawal with a debit card is probably the best option out there. You can easily link your debit card to your transaction account. This way, you will not bear any fee, especially if you use the bank’s associated network.

Conclusion

Consequences that come with cash advances are not to be fearful of. It is undeniable that cash advances could be one of the best options for short-term financing in circumstances of emergencies to meet your needs, however you will need to be mindful of the amount you cash out and how the interest rates and other fees would affect your budget.

If you find yourself needing to cash out through your credit card with cash advance, then it is smart to act upon it now – making a budgeting table or plan and making changes to spending habits.

Other than that, taking up loans from Loan Advisor could be of a great help to you. There are several types of loans you can apply for to suit all of your financing needs. Not only that, approval also takes almost no time.

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