A cash advance refers to obtaining cash from your credit card in advance of you actually having that amount of money. It is essentially a short-term loan from your ATM, bank or credit card provider.
Unlike using a debit card, when you make a withdrawal from your ATM as a cash advance this means you will need to repay that amount – similarly to other expenses you use your credit card for, such as subscriptions or a service.
As such, with a cash advance instead of buying a good or service, you are essentially buying cash.
How do Cash Advances Work?
There may be some instances where you might not be able to use your credit card, and do not have any cash to hand. In these instances, a cash advance can appear tempting so that you can follow through with a payment that can only be made in cash, such as in a market or a situation where the card till is not working properly.
You may also turn to using a cash advance from an ATM if you simply to do not have enough funds in your account alone.
Cash advances can be withdrawn using a pin from any ATMs. If you do not know your pin, you will need to attend a bank or credit union in person and show your ID that matches the details on your credit card.
It is important to note that with cash advances, most credit card providers will only allow their customers to withdraw a small portion of their credit line in cash, never the whole thing. As such, there is usually a withdrawal cap on cash advances and this can vary from provider to provider. In instances where you might require a large sum of cash, such as in a medical emergency, then cash advances are unlikely to serve as the best route.
Are Cash Advances Expensive?
While they may be easy to get, cash advances are certainly not cheap. In fact, they serve as one of the most costly ways to get cash fast.
This is because they come with a wide range of additional expenses including bank or ATM fees, a fee charged for the cash advance as well as interest charged on top too. The interest rate charged on cash advances is typically more than on purchases made for goods or services, and the interest builds up immediately as soon as it is withdrawn with no gap or grace period like with other purchases that are made using a credit card.
As such, cash advances can prove to be very expensive. They should thus only be sought after in extreme instances and when you know you will be able to pay it back in the given time. Cash advances should never be taken out on a regular occurrence.
What are the Alternatives to Cash Advances?
If you need cash fast and do not have the funds in your account then there may be a number of options available to you that may suit you better than taking out a cash advance. These may include the following:
- Personal Payday Loans
If you have a poor credit score, this may be an expensive option to pursue but personal payday loans may offer better interest rates than cash advances.
- Borrowing Money from Family or Friends
While it may be awkward, borrowing money from family members or friends will not be accompanied by the interest rates than additional fees that apply with cash advances. Repayments may also be lenient but it is always worth coming together to complete a clear and detailed repayment plan or strategy.
- Going Into Your Overdraft
Instead of withdrawing cash as a cash advance, it may be cheaper to simply venture into your overdraft that month. While this will still cost you money, you will only need to pay back the money borrowed as well as a fixed amount, instead of interest rates on top of this which are charged on cash advances.
- Using Promotional Offers From Your Credit Card Provider
Some credit card providers may allow their customers to turn their available credit cards into installment loans with better terms. While customers will still be charged interest on this, it is likely to be a much better rate than those charged on top of cash advances.