Not having access to cash when you need it is stressful and inconvenient. A cash advance is a short term cash loan made against an existing line of credit. An advance allows you to use your credit card to get cash from an ATM or bank. Just like any credit used on a credit card, a cash advance needs to be paid back and will accrue interest.
Cash advances can be expensive because most card issuers charge a fee; either a flat rate or a percentage of the advance, whichever is greater. They may also be subject to higher interest rates than regular purchases made on your credit card.
Cash advances are short-term loans you can take against an available balance on a line of credit, like a credit card.
Common Reasons to Get a Cash Advance
Cash advances are convenient if you are shopping at a business that only allows cash or you don’t have enough money in your bank account to withdraw cash.
Medical Bills: Cover office visits, co-pays, prescriptions, or medical services that need to be paid for upfront.
Car Repairs: If you rely on your car to get to and from school and work you may need a cash advance to cover a sudden car repair.
Travel Needs: Pay for travel expenses like plane tickets and hotels. Particularly helpful for funerals or weddings.
Moving Expenses: Pay for moving expenses when you need to relocate but are short on cash.
Housing Expenses: Avoid late fees by paying your rent on time. This can be particularly helpful if you are an independent contractor or seasonal worker who is paid on an irregular schedule.
Are Cash Advances Expensive?
It depends on your interest rate and lender fees. Most lenders charge an initial fee that is either a flat fee or a percentage of the advance, whichever is higher. For example, if the flat fee is $15 and the fee percentage is 7% — a cash advance of $500 would cost you $35, or 7% of the advance. An advance of $100 would cost you $15, the amount of the flat fee.
In addition to this fee, you will have to pay interest on your cash advance. Unlike standard credit card balances, interest begins to accrue right away. This means that even if you pay it back completely within the month, you’ll still pay interest.
In 2020, credit cards have an average interest rate of 20.15%. By comparison, cash advances have an average interest rate between 22% and 30%. Remember, in addition to the interest you will pay a fee when you take out the advance.
Pros of Cash Advance
- Easy to qualify for
- Cash is funded quickly
- Flexible terms
Cons of Cash Advance
- The initial fee (flat rate or percentage)
- ATM fees (average $4.72)
- High-interest rate
- Interest accrues immediately
Cash Advances vs. Payday Loans
Cash advances and payday loans have several similarities. They are both short term loans that require the borrower to pay a fee and interest. However, payday loans tend to have a set repayment date of 2 weeks while cash advances do not. The incentive to repay a cash advance in a short time frame is to avoid accruing interest, rather than to avoid late repayment fees or balance rollover fees.
For a payday loan, you are charged a fee upfront based on how much money you borrow, this is usually $10 to $30 for every $100 borrowed. With most payday loans this fee would be reapplied every two weeks that you were unable to repay the loan. This could amount to an APR of 400% or more.
With a cash advance, you also pay an upfront fee, but the APR is much lower, typically around 24%. The interest begins to accrue immediately but the loan does not accrue additional fees as long as you are making minimum payments on your credit line.
You’ll pay a set amount in interest for a payday loan. For a cash advance, the interest you pay depends on how long you carry your debt.
- Amount based on your available credit
- Accrues interest immediately
- Finance charge does not rollover
- 24% average APR (without fees)
- Usually requires a credit check
- Amount based on your next paycheck
- Finance charge rolls over every 2 weeks
- Typically 400% APR or more
- Usually does not require a credit check
Get a Cash Advance Loan Online
Lenders that advertise and offer cash advances online that are not attached to an existing line of credit are essentially offering payday loans by a different name. This is probably to remove the stigma of payday lending which has a reputation for very high APRs that trap borrowers in a cycle of debt.
If you need cash but do not have an existing line of credit, the services you find online are likely to be structured like payday loans. In order to get the benefit of a cash advance, you will need to take out an online loan or other lines of credit that allow you to withdraw cash.
Paying Off Debt with a Cash Advance
If you have debt that you cannot pay or are afraid that your bank account will overdraft, a cash advance can be a temporary stopgap. Cash advances work best for short terms expenses that you can pay back within a few months. For this reason, using a cash advance to pay back debt usually works best for small amounts and is not a solution for long term debt relief.
Relief from Credit Card Debt
Most credit cards won’t allow you to take a cash advance for the full amount of your credit line, however, if you have already borrowed against your credit line and also take out a cash advance you can easily max out your credit card and find yourself with a high debt to income ratio (DTI) that damages your credit score.
If you’ve maxed out several lines of credit, the situation can become overwhelming and you may need debt relief options like credit card debt consolidation.