A credit card cash advance is a short-term loan taken against your line of credit. However, this transaction comes at an expensive cost. Aside from repaying the money you’ve taken out, you’ll most likely pay a steep annual percentage rate (APR) on your balance.
This short-term loan allows you to use your credit card at an ATM or a bank to get immediate cash.
Think of it as “buying” cash instead of services or goods. Sure, it’s commodious, but it’s downright expensive. So, it’s crucial to read your credit card fine print to find information about potential penalties, fees, and rates you may expose yourself to while using the card.
Below are some things you need to look for in your credit card fine print.
Factors That Can Impact The Cost Of Credit Card Advances
Unlike using your credit card to spend the same amount online or in-store, a credit cash advance will always be costly. The main reason for this is that cash advances usually start adding interest rates immediately.
On the other hand, interest charges don’t typically accumulate on purchase transactions after the grace period. How much you pay for a cash advance will vary greatly on your credit card fine print.
The following are the things on your fine print you need to keep a close eye to:
- Cash Advance APR. Compared to your credit card’s standard APR, the cash advance APR will be higher. On top of that, you’ll likely incur fees.
- Bank or ATM Fee. A third-party ATM provider or bank will charge transaction fees for credit card cash advances. Make sure to search for the lowest-cost option.
- Cash Advance Fee. Credit card issuers usually charge a cash advance fee. This fee is either a flat dollar amount or a percentage of the cash advance.
- Separate Credit Limit. Note that credit card advances usually have a separate credit limit, which is a percentage of your overall credit limit. That’s why you’ll only be able to get a few hundred dollars.
- No Grace Period. Unfortunately, credit card cash advances don’t have a grace period, which means interest will start to accumulate from the date you take out a cash advance.
How Does A Credit Card Cash Advance Work?
There are a few ways to take out a credit card cash advance:
- Convenience Checks. A handful of card issuers offer convenience checks, which you can use for cash advances. Set the amount you want and deposit or cash it at your credit union or bank.
- You can use the bank’s mobile app or website to request a cash advance sent to your bank account.
- In-Person. Take your card to your credit union or bank to ask for a cash advance. Aside from the interest and fees your issuer charges, the bank may charge a separate fee.
- At The ATM. You can visit an ATM to withdraw a cash advance. But take note, ATMs usually limit how much money you can take out per day. Hence, this only works if the amount you need is within the limit.
How A Credit Card Cash Advance Impacts Your Credit Score
While a cash advance doesn’t actually impact your credit score, the balance will be added to your outstanding debt, which can damage your credit score, specifically if it shoves your credit utilization ratio (the amount you owe on all your accounts) too high.
A high credit utilization ratio can adversely affect your credit score, particularly once it towers over 30%. Also, a credit card cash advance can hurt your credit score if you can’t manage to stay on top of your bills.
Remember that making timely payments is a vital factor in your credit score. Missing or late payments could have an undesirable effect.
Consider the following if poor credit cash advance loans aren’t suitable for you:
- Debt Consolidation Loan. This type of loan is used to merge your debt, like high-interest balances, into a new low-interest loan.
- Lending Circles. These are small groups of individuals who agree to pool their money and lend it to the members, usually of little to no interest.
- Friends and Family. You can choose to borrow money from a close friend or family member to cover your financial shortfalls. Be sure to put a loan agreement in writing.
A credit card cash advance might seem like a great solution when you need money in a hurry. However, remember that cash advances come at a high price. With that said, make sure to assess all other alternatives and don’t rush into this decision. Also, ensure that you understand all the accompanying costs involved and develop a plan to pay off the advance quickly.