A Quick Guide About Cash Advances

If you need money for unexpected expenses, you might be considering getting a cash advance from your credit card.

This type of funding option can help you get the money you need without even applying for a traditional loan. Cash advances usually don’t require a credit check, which makes it fast and hassle-free.

The interest rate and fees you’ll repay when it comes to cash advances typically depend on the length of the loan. In addition, lenders limit the maximum amount you can get in cash advances. Thus, it might not be sufficient to cover your large expenses.

How Does Cash Advance Work?

Your credit card can allow you to borrow a set amount as an advance. However, it’s crucial to remember that you’ll need to pay it back with interest.

Also, you can only borrow a certain amount of money based on your cash advance limit, which is also different from your credit limit.

When you apply for cash advance and get approved, the amount will be added to your credit card balance.

Like purchases and balance transfers, the amount will also accrue interest over time. The annual percentage rate (APR) charged to your account for the cash advance might not be the same as the APR charged on your usual purchases.

Purchases using your credit card usually have a grace period. However, there’s no such thing when it comes to cash advances. The interest rate will start to accrue once you receive the funds.

Getting a cash advance on your credit card with an outstanding balance would mean that your payments might be used to repay the balances with a lower interest rate first before the ones with the higher interest rate.

In this case, your purchase balance typically has a lower interest rate, and your cash advance usually has a higher interest rate. So, it is best to contact your credit card issuer if this is the case.

You can get cash advance through any of the following means:

  • In Person

You can opt to your bank or credit union and request a cash advance. However, besides the usual fees and interest rate, the bank or credit union might also charge a separate fee.

  • At The ATM

A cash advance through an ATM can be obtained with a credit card pin. You can easily enter your pin and then withdraw the cash you need. If you don’t have a credit card pin, you can call the credit card company and ask for one.

  • Online

If you use online banking, you might be able to ask for a cash advance to be transferred to your account.

  • Convenient Checks

Often, some credit card issuers give you a convenience check, which you’ll use for a cash advance. The check will carry the funds you need, and you can then deposit or cash it at the bank or credit union.

Fees You Should Know

Cash advances typically come with fees. These fees will add up to your total cash advance cost. So, it is crucial to understand them. They include the following:

  • Cash Advance APR. As mentioned earlier, the APR of a cash advance is different from the APR on your regular purchases. So, it’s recommended to talk to the credit card issuer about this to know how much you have to pay.
  • Cash Advance Fee. Typically, the cash advance fee is 5% or 10% of the amount you borrow, whichever is higher.
  • ATM or Bank Fee. The bank, credit union, or ATM will charge you a fee for a cash advance, which is different from the fee the credit card company might charge.

Cash Advance and Your Credit Score

Getting a cash advance will not directly affect your credit score. Plus, your credit history will not show you borrowed one. However, getting a cash advance would mean that the balance will be added to your credit card debt, which can impact your credit score.

If getting a cash advance pushes your credit card utilization ratio above the normal range, your credit score will suffer several points.

The credit utilization ratio illustrates how much of your revolving credit is available for usage. This factor can hurt your credit score, especially when it reaches 30%.

To Sum It Up

A cash advance is a way you can get funds quickly. If you need money for unexpected expenses, requesting a cash advance might be the perfect solution. However, make sure you understand the APR and fees that might come along with this funding option so that you can come up with a wise financial decision.

Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.