Pros and cons, and alternatives to consider
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- A credit card cash advance is money you borrow over the credit limit of your credit card. You can either withdraw it at the ATM or go to the bank to withdraw it.
- While a cash advance is quick and easy, it comes with very high interest charges – expect to pay an APR of 25% or more, with no grace period before you start earning interest.
- Credit card cash advances can also affect your use of credit, an important factor that determines your credit score.
- If you need extra cash to pay the bills, consider keeping a balance on your credit card instead. You’ll usually pay a lower APR, and if you’re lucky, you might even be able to take advantage of an introductory APR offer.
- Also consider your options for deferring payments. Many lenders currently offer payment flexibility to their customers.
With over 20 million people filing for unemployment recently, paying the bills is a struggle for many. And if you don’t have emergency funds, you may be looking to other options to make ends meet.
If you’ve lost a source of income or are unable to pay your bills, the option of taking out a cash advance on your credit card may also seem like a viable option. But is it? Here’s what you need to think about before you turn to your plastic.
What is a credit card cash advance?
A cash advance is money borrowed over the credit limit of your credit card, as opposed to your bank account balance. If you have set up a PIN code for your credit card, you can withdraw your cash advance at an ATM. You can also go to the bank with your card to request a cash advance.
There are a few advantages to getting a cash advance on your credit card: it’s quick and easy to get, it doesn’t require you to have money in your bank account, and there is also no checkout process. ‘approval. Unlike a loan from a bank, you don’t need to go through a credit check or submit any documents, points out Christopher Liew, chartered financial analyst and founder of WealthAwesome.com.
Cash advances aren’t as bad as payday loans when it comes to interest rates, but that’s hardly an endorsement. Payday loans are known for their exorbitant fees. For two week loans, the interest rates can range from 390% to 780% APR. Shorter term loans have even higher APRs. Rates are even higher in states that do not cap the maximum cost.
Cash advances by credit card: the downsides
The benefits of a credit card cash advance pretty much end there. The quick fix has consequences.
First, the interest rate is going to be high, up to double the rate on your credit card, says Adrian Nazari, CEO of Credit Sesame, a credit and loan company. For many popular credit cards, the APR of the cash advance is 25% to 27%. You won’t have a grace period, which means you immediately earn interest.
Your credit card issuer will likely charge you additional fees (typically 3-5% of the total amount advanced, with a minimum of $ 10), he says. And if you use an ATM that’s not affiliated with your credit card, you’ll accrue even more fees.
“We find that many borrowers have the amount they owe on the card balloon considerably after a cash advance, which reduces the available credit and exposes them to additional fees and larger monthly payments,” explains Jeremy Lark, Senior Director of Operations for GreenPath Financial Wellness. , a provider of debt management and counseling services.
It could affect your credit score
Also understand that adding to your credit card balance will increase your credit usage and work against your credit score. The higher your credit usage, the greater the negative impact on your credit score, since your amounts owed represent 30% of your score.
No safety net if your money is stolen
You are out of luck if your cash advance is lost or stolen. You don’t have the safety net that you would have if there had been an unauthorized transaction on a credit card.
T0p alternatives to a credit card cash advance
You understand that a credit card cash advance shouldn’t be your first option in an emergency. But you still need the money in your pocket. There are a few other choices to consider.
Have a balance on your card
Charging your credit card is probably a better idea than getting a cash advance. Bob Castaneda, program director for the MS in Finance program at Walden University, says: âIt is more beneficial for people to conduct regular transactions rather than getting a cash advance, because of the rates. lower interest and the possibility of earning reward points. “
If you have a credit card that offers an introductory APR period, you may be able to avoid interest charges for a while. If you don’t, it might be worth applying for a credit card like the CitiÂ® Double Cash Card or the Citi SimplicityÂ® Card, but note that issuers have recently tightened their approval standards, so it may be difficult to get one. cards now.
See if you can get deferrals on other bills like student loans or mortgage payments. In view of the pandemic, many lenders are open to such arrangements.
Consider a personal loan
See if you can get a personal loan through a credit union. Their interest rates are usually a bit lower. Says Lark, âEven an installment loan vs.
like on a credit card can be a smart game if it is accessible and saves quite a bit of money on long term interest. “
The Bottom Line: 99.9% of the time, getting a cash advance with a credit card is a bad idea.