How To Use Cash Advances

When you’re low on cash, or have a financial emergency, a cash advance might feel like a straight-forward way to get some cash in your pocket, fast. And it’s true, it is. Cash advances are quick. So, if you’re in a real bind, they might be worth exploring.

But not before you take into consideration all the potential downsides – and there are plenty of those to go around. 

So, what is a cash advance?

A cash advance is a loan that you can take out from the bank against your credit card limit. But while the borrowed money technically comes from your credit card, the associated interest rates are significantly higher than the revolving credit used to make purchases using the card itself – up to 30% in some cases. There are also fees associated with taking out a cash advance, as high as 5%. 

There are a few ways to use a cash advance. First, if you have an ATM pin number, you can withdraw money from an ATM at the bank. You can also request a pin number at the bank, or get what’s called a convenience check, which you can cash for cash advance loans. There are also a slew of cash advance apps out there (you can check out our guide to the best ones here!) that can be used for cash advances. 

Regardless of your credit limit, the amount of money you have access to for a cash advance will not necessarily match the amount of cash you’re permitted to take out. 

What kind of cash advances are there?

• Credit card cash advances: if you have a credit card that offers cash advances, this is the advance you would apply for. You can either use your pin at the ATM or go into your bank to take out the money, and will pay a hefty fee and interest rate on the amount taken out. 

• Payday loans: Payday loans are high-interest, short term loans that are currently illegal in multiple states in the United States due to their predatory nature. The name payday comes from the fact that the borrower is expected to pay the loan back on their next payday. It is meant to hold someone over until they are paid. Like cash advances, payday loans are widely advised against if the situation is not an emergency.
  

• Merchant cash advances: merchant cash advances are sums of money that a cash advance company can provide you and your business that can be extremely expensive, according to NerdWallet.”With an MCA, a company gives you an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee,” it says. 

• Cash advance apps: cash advance apps are another way to access money quickly, often until your next paycheck comes in. You download the app and enter your bank information. You may be requited to pay a subscription or fast-funding fee, or to leave an optional tip. Once approved, you will get the funds directly in your bank account, and they will deduct the amount, plus any additional fees, once you get your next paycheck. 

OK! I need cash. How do I apply for one? 

If you have a credit card, you do not need to get approved to take out a cash advance. The terms for interest on cash advances are written in your credit card statement and it is advised that you check them out before you take out the money! 

What are some pros and cons of using a cash advance?

• Pros

  • Speed: when you are in a crunch and need to get your hands on cash fast, taking out a cash advance is arguably one of the quickest ways to go about doing so.

  • Ease: As long as you have not maxed out your credit card, you will be able to take out money against your limit simply by going to an ATM or bank branch.

• Cons 

  • High interest and fees: the fees and interest associated with taking a cash advance are even higher than the already skyrocketing interest rates associated with credit cards. 

  • No grace period: when you make a purchase on a credit card, you are typically given a one month grace period before interest accrues. That is not the case for cash advances. You start accruing interest from the moment you take out the cash advance, making the likelihood of accumulating debt from a cash advance high. 

What are the interest rates & repayment terms for cash advances? 

Interest rates vary from card to card, and it is advised that you check the rate listed on your credit card statement for cash advances, which will typically be higher than your credit card interest rate. As mentioned, there is no grace period with a cash advance. So, while there is no certain date you need to pay the amount back by, you will accrue heavy amounts of interest for every day you do not pay the amount back. 

How do I use one responsibly?

If you ultimately decide that taking out a cash advance is the right option for you, there are a few ways to go about using them responsibly. They are:

• Only take out an advance if you know, for certain, that you’ll have the funds in your account to repay it. Interest racks up extremely quickly on a cash advance, or any form of borrowing, and you could end up way deeper into debt if you’re not able to pay back the amount right away. If you go the app route, you also risk having your account overdrawn and all of the financial risks associated with that happening.

• Do your research. Do not take cash advances lightly, and use them only in a case of a true emergency. Look into alternative ways to fund your account or expenses, like taking out a personal loan, asking friends or family or even using a credit card – cash advance interest rates are higher than the ones on your credit card. Using an app, then, might be your best bet when it comes to choosing between types of cash advances. 

The bottom line

Ultimately, cash advances can be a quick and easy way to get cash in a pinch, but there are other ways, like personal loans, asking for loans from family or friends, or simply using your credit card to cover expenses that long term, are more cost-effective.