If an emergency arises and you need cash quickly, there are a few options. One of them is a cash advance, which is when you withdraw money against your credit card limit. While on the surface this seems to be similar to withdrawing money from your checking account through a debit card, there are some important differences. Read on to learn all about cash advances!
What is a cash advance?
As we mentioned, a cash advance allows you to borrow money against your credit card limit if you need cash in a hurry. In most cases, you can withdraw from as little as $100 to as much as 30% of your credit limit through a cash advance, and that amount is then deducted from your available credit and added to your credit card balance.
Cash advances are generally only recommended for use in an emergency situation. Why? Because there are usually better and less expensive ways to get cash, which we’ll cover shortly. That said, a cash advance is still a viable option if you really need cash quickly.
How does a cash advance work?
Cash advances can usually be obtained fairly easily. You have a few options:
- Visit your local bank branch. All you need to do is ask someone at your local bank for a cash advance–just be sure to have a valid ID with you.
- Go to an ATM. To withdraw cash against your credit card limit at an ATM, you’ll need to have your credit card’s PIN, which you can usually receive online.
- Call your credit card issuer. You can dial up customer service for your credit card issuer and ask for a cash advance, during which you may transfer money from your credit line to a different account, like checking or savings. Some issuers, however, may not allow a cash advance to be completed over the phone.
- Log into your credit card account online. Most credit card issuers allow you to complete a cash advance through an online transfer.
- Use a convenience check. If you still receive paper statements from your credit card issuer, you’ve likely received convenience checks within some of those statements. These are literally blank checks that borrowers fill out, which allows them to access credit lines for cash.
In most cases, you’ll receive your money immediately through a cash advance. But there is a catch, which we’ll cover next.
Are there fees involved with cash advances?
And here’s the catch. Yes, you’re usually charged a fee up front by your credit card issuer when you take out a cash advance against your credit card. The fee may be a flat fee (a common charge is $10) or a percentage of the amount of cash advanced (usually between 3% and 6%).
On top of that cash advance fee, there may be what’s called a cash advance APR (annual percentage rate), which is similar to interest, you must pay for the transaction. Cash advances are usually tagged with a higher APR than other credit card purchases you might make, and the interest begins to accrue immediately after you receive your cash advance.
So, how much this fee winds up costing depends on the amount of the cash advance. Let’s look at an example–you want to use a cash advance to borrow $2,000 from your credit card limit, and you want to conduct this transaction at an ATM. Let’s say your credit card issuer charges a 4% cash advance fee, plus a 30% APR for cash advances. Here’s what you would owe on a $2,000 cash advance:
- 4% cash advance fee = $80
- One month of interest at 30% APR = $50
- Total fees = $130
When all is said and done, you would owe $130 for taking out a $2,000 cash advance and then paying it off within a month–that means your payment would be $2,130. Plus, if you use an ATM that is not your bank’s or credit union’s, you’re looking at another small fee–usually up to $5. So, while a cash advance is a quick and convenient way to get your hands on cash quickly, you will pay for that convenience through fees.
Does a cash advance affect your credit score?
Yes, a cash advance does affect your credit score…but not directly. Because the cash advance balance is added to your credit card debt, it may impact your credit utilization ratio, which shows how much of your available revolving credit you’re using.
Most healthy credit scores feature a credit utilization ratio below 30% (10% or below is considered excellent), so if you take out a large cash advance against your credit card, your balance could potentially push your credit utilization ratio past 30%–and that could negatively impact your credit score.
Another potential indirect negative impact on your credit score could come if your cash advance and its high APR make it harder to pay your other bills. If you’re paying your bills on time, you should be fine; however, making late payments or falling behind on payments can do substantial harm to your credit score.
What are the benefits of a cash advance?
- You get your cash immediately. This is the biggest appeal of a cash advance–if you need money fast for an emergency, a cash advance accomplishes that goal.
- No collateral, credit check, or application required. As soon as you qualified for your credit card, the issuer basically gave you the green light to take out money as a cash advance. That means they’re confident you’ll be able to pay it back on time. Additionally, unlike some personal loans, cash advances don’t require you to offer something valuable as collateral in the event you’re unable to pay off the balance.
- Cash advances cost less than some other options. A payday loan is an option many people turn to when they need immediate cash. This often proves to be quite harmful to the borrower’s finances, however, because payday loans charge APRs up to 400% once all fees are calculated. That makes the cash advance APR look much better in comparison.
What are the risks of a cash advance?
- There’s no protection. Credit cards offer certain protections against fraud and theft–but only when your credit card is stolen. If you withdraw cash against your credit card, and that cash is stolen, you’re simply out of luck.
- High fees and interest rates. As you learned when we calculated the fees for a cash advance, they can be quite expensive after you factor in APR and other fees. And these fees start immediately–as soon as you have the cash in your hands. This doesn’t only apply to the upfront cash advance fee either; you’re charged interest right away.
- Your credit score may be negatively impacted. Again, there’s no guarantee that your credit score will be affected in a bad way. It really depends on how much your cash advance is and if it has the potential to affect your payment of other bills and debts. A credit utilization ratio over 30% as well as late payments, whether as a result of the cash advance or not, can significantly impact your credit score.
What are alternatives to taking out a cash advance?
Fortunately, there are plenty of better options to secure cash than taking out a cash advance.
- Withdraw cash from your checking account with a debit card. If you have enough in your checking account to cover your expenses, using your debit card will save you the fees and APR charges that a cash advance would incur.
- Use funds from your savings or emergency account. Many people keep a savings fund or an emergency account to save money for situations just like this. If your expenses are indeed emergencies, then put your emergency funds to work instead of getting a cash advance.
- Take out a personal loan. While this method may take a bit more time than withdrawing from a checking or savings account, many personal loans can be approved quickly. If you’re in need of cash, apply for a personal loan with your bank or credit union. This will provide you with the necessary cash, most likely at a substantially lower interest rate than a cash advance–assuming your loan application is strong, your credit score is solid, and you have the income to repay your debt.
At Sun Loan, our personal installment loans can be processed the same day, and we’ll work with you to ensure your monthly payments are affordable. You can apply for a personal installment loan from Sun Loan here!
- Use a balance transfer to get cash. Many people transfer their credit card balances to another card that offers a lower APR–in fact, many cards offer an introductory 0% APR for a brief period of time. But you can also use a balance transfer to get the cash you need by requesting the balance transfer amount by check. That amount, plus the balance transfer fee, would then be the balance you’d need to pay on your new credit card. The good news is, if you’re able to secure a 0% APR, you have a little bit of time to pay off the new balance without any interest being charged. One important note–balance transfers can take several days to process, so if you need the cash immediately, this may not be the solution for you.
- Borrow the money you need from family or friends. This is absolutely easier said than done, but family and friends are there to support you in times of need. And if you’re stuck in a difficult situation that requires more money than you have, there is no shame in asking a friend or family member for a loan. For one, they likely won’t charge you any fees or interest; they also will probably be much more lenient as far as the time you need to repay the loan.
Final Notes
While cash advances are certainly an option during a financial emergency, they’re not always the best choice when you need cash quickly. Cash advance fees and APR charges wind up costing you even more in the long run. As we mentioned, there are more appealing–and less expensive–ways to get the cash you need, including using the money in your checking account via debit card, withdrawing money you already have saved in a savings or emergency fund account, initiating a balance transfer, and taking out a personal loan. Sun Loan’s personal installment loans are ideal thanks to same-day processing (in most cases), loan terms up to 36 months, affordable monthly payments, and the ability to build your credit with on-time payments. And to help you out once you get your cash, our debt consolidation loans help you pay off existing debts with an affordable monthly payment and a solid path to establishing your credit history.
To learn more about our loan options, visit https://www.sunloan.com/loans/, stop into one of our many convenient branches, or call (800) SUN-LOAN today!
