The great thing about credit cards is that they can offer you protections on purchases that you can’t get when you use cash or a debit card.
And, they can help you leverage your cash flow by allowing you to finance big purchases, instead of paying for them all at once.
But you can’t use a credit card everywhere. Sometimes, you need to use cash.
However, credit card plastic could technically help you in those situations, too. You can take what is a cash advance through your line of credit.
Curious to know what is a cash advance and what happens when you use it? Let’s break it down and see if a cash advance on a credit card is as convenient as it claims.
What is a cash advance on a credit card?
A cash advance on a credit card is a way to withdraw cash using your line of credit.
Credit card companies will even send you cash advance checks that you can use, sometimes called convenience checks. You fill out the check and use it as payment. Just like you would a check from your bank account.
You can use a check and cash it, or you can withdraw cash from an ATM up to a certain limit.
Why take one out? It gives you payment flexibility. Cash advances can help you pay for something you need if cash is the only option for payment.
Depending on your credit card company some purchases that you charge directly on your credit card can count as cash advances too, such as money orders and lottery tickets.
How do cash advances work?
Think of a cash advance like a loan you take through your credit card. You’re just borrowing the cash from your line of credit.
However, just like any other loan, this is money you need to repay. And, the credit card company will assess a fee for allowing you to take out the “loan” in the form of flat fees and interest rates.
Flat fees are based on the amount of the cash advance. It’s usually anywhere from two percent to five percent of the amount borrowed.
The way interest rates work on cash advances is where things can get financially risky. For one, the rate is much higher than the rate you pay when you use your card for normal charges.
Additionally, the interest rate on cash advances can be double what your normal APR is. Some companies charge as much as 29.99% APR to take out cash through your line of credit.
Make sure you understand exactly how that interest is calculated by your credit card company before taking a cash advance on a credit card.
How is interest calculated for cash advances?
Normally, when you charge something to your card today, you usually have a full billing cycle to pay off the charge.
But when it comes to understanding how do cash advances work, it’s important to know the credit card company calculates interest differently. That’s because there’s no grace period.
Whatever balance you create by taking an advance starts accruing interest immediately. Therefore, your costs can rise exponentially for every day you carry the balance.
If you do take a cash advance, you must make a plan to quickly repay the money you borrowed against your own line of credit.
Can you use a cash advance responsibly?
Most people will never have a real use for a cash advance. With all the financial downsides, it’s just not worth the extra cost that you pay when you use this method of payment.
There’s no reason to do it if you can use a credit card. And in cases when you can’t, it almost always makes more sense to wait to make the purchase until you do have cash.
That might mean waiting until you can go by the ATM with your debit card. Or, simply saving up for what you want.
Cash advances shouldn’t be outlawed from your financial toolbox. But using them responsibly might mean using them only in an extreme emergency.
It’s entirely possible that you could find yourself in a situation where you need to make a purchase but the merchant doesn’t accept credit cards — and you don’t have any cash. Using your credit card for a cash advance can help get you out of that sticky situation.
But using a cash advance on a credit card to get cash for discretionary purchases or because you want something (rather than need it) is not a smart money move.
Most people will fare better by exploring other options. Consider taking a personal loan if you need cash for a large purchase or investment. Or, save up the cash you need over a period of time. It may not be an instant fix, but it’s the most financially savvy solution to take if you can.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|