Expenses keep coming, and some people need extra cash to cover short-term emergencies. People in this scenario will borrow money to pay expenses and then repay the loan. Unfortunately, some people who borrow money for innocent expenses find themselves in a mountain of debt due to high interest rates and not paying off the debt on time. Payday loans and car title loans are notorious for high interest rates, making consumers seek alternatives. A credit card cash advance is one alternative you may have considered. We will discuss how much credit card cash advances cost and whether you should use them or get funds elsewhere.
How Does a Credit Card Cash Advance Work?
A credit card cash advance provides you with additional funds. Credit cardholders can borrow against their credit limits and repay the debt over time. You can either get cash from your credit card at an ATM or your bank’s local branch, assuming the branch supports credit card cash advances. Banks will ask for your ID before giving you a cash advance. You won’t have to show your ID at an ATM, but your credit card must have a PIN.
Credit card issuers will not let you borrow cash against your entire limit. Also, most credit card cash advances are only a few hundred dollars. That’s enough money to cover some emergency expenses, but if you have medical bills or are planning a vacation, a credit card cash advance isn’t the best funding source.
Do Cash Advances Hurt Your Credit?
Cash advances immediately increase your credit utilization ratio, and a higher ratio will hurt your credit score. Credit utilization measures the percentage of your untapped credit limit. For example, if you have borrowed $1,000 against a $5,000 credit limit, you have a 20% credit utilization ratio. A credit utilization ratio below 30% will help your score, with credit utilization under 10% yielding the best credit gains.
Paying the cash advance late can also hurt your credit score and result in more interest. Most credit cards include 21-day grace periods where you don’t accrue interest on the cash advance. After this grace period, interest accumulates, making it more difficult to stay on top of your financial obligations. Cash advances won’t hurt your score if you quickly pay them off, but letting them linger can hurt your score and lead to bad money habits.
What are the Fees for Credit Card Cash Advances?
Credit card companies charge several fees for cash advances. These fees can quickly add up if you frequently use credit card cash advances.
- Cash advance fee: This fee is either a percentage of the total cash advance or a dollar amount, such as $10. Some issuers charge a cash advance fee based on whether the minimum dollar amount or percentage of the cash advance is higher.
- ATM/bank fees: The ATM or local branch you use to obtain the funds may have additional fees. These costs vary, but you should keep them in mind if you plan to use credit card cash advances.
- Interest: Financial institutions set double-digit interest rates on credit card debt. You can avoid interest by repaying the cash advance within the grace period, but this expense can rapidly add up if you do not sort it out right away.
Things to Consider Before Requesting Credit Card Cash Advances
Credit card cash advances will provide you with additional funds, but getting extra money isn’t always a good thing. So, you should consider these factors before reaching out to your credit card issuer or bank for a cash advance.
Use Only When Necessary
A credit card cash advance has additional fees and will increase your debt. If you have to request a cash advance, you should do so sparingly. Requesting numerous cash advances will result in more debt and fees, and all of these requests can cultivate bad money habits. You should only request credit card cash advances during emergencies. If the purchase can wait, save for it instead of tapping into your credit line.
Understand Credit Terms and Conditions
Credit cards lay out their interest rates, fees, and other important details in the terms and conditions. Reviewing these details before asking for a credit card cash advance will reveal how much that request will cost. Likewise, you can review the terms and conditions and check if competitors have lower fees and interest rates. This step is useful even if you do not need a cash advance right now. It’s better to know the terms upfront than get surprised when you need the cash.
Monitor Your Available Credit Limit
Your credit limit reveals how much funds you can borrow between credit card purchases and cash advances. Most companies will not let you take out a cash advance that matches your remaining credit limit, but borrowing a few hundred dollars will get you closer to the maximum. Increasing your debt will also raise your credit utilization ratio, which isn’t favorable for your credit score. Monitoring your credit limit will keep the debt front and center as you repay it. You will also discover how much you can safely borrow based on your credit card balance and interest rates.
Pay It Off as Soon as You Can
Paying the credit card cash advance early gets you out-of-interest payments. Of course, you won’t escape the cash advance or ATM fees, but interest payments can silently destroy your wealth. Paying off a credit card cash advance as quickly as possible enforces robust money habits and will make you less reliant on cash advances in the future.
When Taking a Credit Card Cash Advance Might Be Appropriate
You shouldn’t use a credit card cash advance too often since you’ll end up with a higher interest rate. However, these scenarios can justify a cash advance.
Emergency Situations
If you don’t have enough money in your bank account to cover an emergency expense, you may want to use a cash advance. While a short-term loan can also work in this scenario, you can typically get a cash advance right away. However, it can take a few business days to receive cash from a loan.
Short-Term Financial Needs
Using a cash advance to cover a short-term financial need can also be a good option. The idea behind this method is that you can quickly repay your cash advance with the next paycheck, and you aren’t reliant on cash advances to fund your lifestyle.
Pros and Cons of Credit Card Cash Advances
It’s good to know the pros and cons before jumping into any decision. These are some of the details to consider before deciding if a cash advance is a good idea for you.
Pros
- Receive extra cash that you can use to cover various expenses.
- You do not have to go through a credit check.
- If you have a low balance on your credit card account, you will have a higher cash advance limit.
- You can avoid some of the less favorable alternatives, like payday loans and title loans. A credit card cash advance has a lower annual percentage rate than those alternatives.
Cons
- Credit card cash advances have higher APRs than other types of financing.
- Many issuers have a high cash advance transaction fee.
- A cash advance will get you closer to your credit limit, which can limit future transactions.
- You may stay in debt longer or develop bad financial habits if you rely on cash advances too much.
How to Get a Cash Advance on a Credit Card
Getting a credit card cash advance is straightforward. Here’s what the process looks like.
Requesting a Cash Advance
Your financial institution probably has an online portal that makes it easy to request a cash advance with your credit card. It’s typically a brief online form where you specify how much you want to borrow. You can reach out to your credit union or bank branch and contact customer support for additional assistance. During this process, you will have to specify how much cash you want to borrow.
Cash Advance Limits
Your cash advance limit will never exceed your credit limit. It’s based on a percentage of your available credit. Raising your credit limit and paying off debt will increase how much cash you can access with a credit card cash advance.
Accessing Funds
You must specify which checking account will receive the funds from your cash advance. You will then have to pay the cash advance balance over time.
Is It a Good Idea to Take a Cash Advance on Your Credit Card?
If you can’t get financing from a friend or a family member, you still have to get cash from somewhere. A credit card cash advance is a good option to consider for people who don’t have the best credit scores or enough time to wait for a personal loan to get approved.
The big strengths of a credit card cash advance are that you can get approved right away and don’t have to go through a hard credit check. You don’t need pristine credit to get a cash advance through this method.
A cash advance can also work out well if you have an intro APR rate. You’ll have the opportunity to pay off your balance without accumulating interest. Some consumers initiate balance transfers to prolong the amount of time interest does not accumulate on their debt.
However, using these cash advances too often can become problematic. You’ll have to contend with fees and elevated APRs for each cash advance. Furthermore, you might get a better deal with a personal loan if you have an excellent credit score and can wait a few days to get approved. If you apply for a personal loan through an online lender, you might get approved within 1-3 business days.
It’s best to avoid needing a cash advance in the first place. Consumers should assess their credit card statements to determine why they need a cash advance. While surprise expenses can come up that require immediate attention, it’s not good to fall into a pattern of using cash advances to cover the bills. Picking up a side hustle and growing in your career is a more viable long-term path to financial flexibility.
Alternatives to Credit Card Cash Advances
Credit card cash advances aren’t as bad as payday loans, but you should assess other options. These cash advances have fees and interest, which can add up. Therefore, you should consider alternatives such as the ones listed below.
Friends and Family
Friends and family may bail you out and help you cover emergency expenses. Most friends and family members won’t charge interest, and some won’t request that you repay them. However, you should pay back friends and family out of principle. Asking people close to you for money can minimize costs, but you can damage relationships by breaking promises.
Personal Loans
Personal loans are typically more affordable than credit card cash advances. A higher credit score will help you secure a higher loan maximum and lower interest rates. You can also opt for a lengthy term to reduce your monthly payments. Most lenders will require a hard credit check, and the APR you receive will depend on your credit score, debt-to-income ratio, and other factors.
Salary Advances
Some employers let their workers tap into future earnings to cover immediate expenses. You can receive next week’s wages today instead of waiting the entire week. This strategy can help you cover emergency expenses without tapping into your credit limit, but your wages will take a hit on future paydays until the salary advance is covered. Some employers use earned wage access software that makes it easier for workers to request salary advances.
Digital Credit Line
You don’t need a credit card to get a credit line for good spending. Digital credit lines offer more flexibility and allow you to use other metrics to establish and borrow against a credit limit. Some can even provide you with a line of credit up to $1,000 based on your cash flow.
