What is a Cash Advance and How Do You Get One?

Desperate times call for desperate measures. While I would never recommend that you rely on cash advances, there are times that you may have to get one. Cash advances help you out when you are in a financial pinch. I have had times in my life where I hit a financial crunch and have had to use cash advances to pay some bills. If you have never depended on one, you probably know someone who has. If you don’t know what it means or how it works, then this article will help you get a better understanding of cash advances.

What is a cash advance? 

Cash advances allow you to use a credit card to get a short-term cash loan at a bank or ATM, which you need to pay back at a later date. A cash advance allows you to withdraw cash from your credit card based on your credit limit. When you opt for a cash advance on your credit card, it is basically a certain amount of cash being borrowed against your credit limit. It is just like withdrawing money from your ATM using a debit card, except the cash comes from your credit limit. That is why you have to pay it back with interest. 

What are the benefits of a cash advance?

A cash advance gives you access to cash quickly when in a crunch. You can visit an ATM and get cash in minutes without requiring you to undergo a credit check or loan approval process. As long as you have the available credit, you can get your money instantaneously. They have lower interest rates than title loanspayday loans, and other subprime lenders

What are the drawbacks of a cash advance? 

Cash advances have fees attached with them which charge between 3 to 5 percent of the balance being borrowed. This is known as a convenience fee. Most credit card companies charge $10 or 5% of the amount borrowed based on whichever is greater. So, if you credit card company charges 5 percent and you take a $500 cash advance, you will be charged a $25 cash advance fee. 

These advances come with hefty interest rates attached. The average interest rate on a credit card cash advance is 24%. Rates can range from the low teens to 29.99 percent. The Barclay Ring MasterCard only charges $3 for a cash advance and the interest rate is only 14.24%. That’s one of the best rates on the market today. 

There is no grace period on a cash advance. By law, credit card companies must give you a 21 day minimum grace period on credit card purchases. This means you can pay your balance off without accruing any interest. Unlike purchases, cash advances start charging interest the minute that you withdraw the money.

What is the difference between a cash advance and a payday loan?

Some people tend to confuse a credit card cash advance with a payday loan, but both are completely different. The payday loan doesn’t require a credit check and must be repaid directly to the payday lender, usually by your next payday. However, the credit card cash advance is actually tied to your credit card, which needed a credit check to be approved, so you have the option to pay over a period of time. But then again, you have to keep making minimum payments. 

Payday loans have much higher interest rates than cash advance loans taken off your credit card. Payday loans are harder to pay off than cash advances. Payday loans are automatically deducted from your bank account. Cash advances are added to your credit card purchase balance and are rolled into your regular monthly payment.

When should you use cash advances?

Cash advances are useful for emergency expenses that must be paid right now. Cash advances are acceptable for catching up on past due mortgage payments or missed auto loan payments. They can be useful for fending off foreclosure or repossession. If you are in the habit of using credit cards for day-to-day expenses, then it could be problematic when confronted with a cash-only situation. A cash advance is a tempting opportunity in such scenarios. You can also opt for cash advances if you need paper money but don’t have the sufficient funds in your bank account. 

How can you get a cash advance?

You request a PIN number from your credit card company, you can get cash advances directly from an ATM.  The process is easy and hassle-free. In case that doesn’t work out, you can take your card to a bank that offers advances through your card’s payment network, such as MasterCard or Visa. You have to bring in proof of ID and other relevant documents. 

You can also take out cash advances by using convenience checks sent by your credit card issuer. Convenience checks can be made out to you and deposited in your bank account for cash. The advantage of convenience checks is that many companies offer 0 percent interest for a year or more on convenience checks. Every year Chase Bank sends me convenience checks for my credit cards offering 0 percent interest for 15 months. I use them as interest free loans to pay off bills and pay the money back before they can charge me a lot of interest. 

How much can you borrow?

Please remember that most credit card companies won’t allow you to use your entire credit line in the form of a cash advance. Cash advances are only a fraction of your credit limit. If you have a credit card with a $10,000 limit, your cash advance limit may only be $3,000.

Best tips for using a credit card cash advance:

  • Use a credit card with no cash advance fees. Some credit cards allow you to take a cash advance and do not charge you a 5% fee. The PenFed Platinum Rewards Visa Signature Credit Card, the PenFed Promise Visa Cash, and the DCU Visa Platinum Credit Card are examples of cards with no cash advance fees. 
  • Find a credit card with a low APR for cash advances like the Barclay Ring MasterCard.
  • Pay off your advance as soon as possible since the interest is higher than most purchases.
  • Do not continually rely on cash advances as it will create an endless cycle of indebtedness.