Cash Advance

Cash Advance

If you don’t need actual greenbacks, you may need a quick loan that acts like a cash infusion. Since so many people have credit cards, that’s often the first place they turn to get that cash advance.

Cash advances are short-term loans that do the job when credit cards aren’t accepted. They are quick-fix solutions for financial emergencies. They also could be used if you don’t have enough money in your checking account or your paycheck is coming in late or is less than usual and you need money to pay a bill immediately.

You can get cash advances from banks, ATMs or payday lenders. Cash advances are easy to obtain in most areas and can be a good, short-term solution, but they carry considerable risk if you can’t pay them back quickly, or if you get in the habit of using them too often.

How do I get one?

You need a credit card to start the process for getting a cash advance at a bank or ATM. Present your credit card at a bank and in most cases, you can receive the amount available on your cash credit line, which is determined by your balance and how many purchases you’ve made. The same is true at an ATM, where you will need your credit card and a pin number.

Do Cash Advances Impact Credit Reports?

Credit reporting companies do not include cash advances on your report, so your score will not be directly affected. There a big “but” however.

A cash advance comes with high interest rates and fees. If you don’t pay it off quickly, those interest rates will cause your balance to balloon. The more in debt you are, the harder it will be make payments.

The increased balance will also impact your credit utilization ratio, which accounts for 30% of your credit score.

Payment Allocation Rules

They are the fine print rules that allow lenders to wring as much money out of you as possible. Your credit card balance has different rates based on the type of purchases you’ve made.

Issuers want to apply your payments to the balance with the lowest rate, which means higher-rate balances will decrease more slowly and incur more interest.

Federal law requires credit card issuers to apply the minimum monthly payment to balances with the highest interest rate. But anything you pay above the minimum can be applied at the lender’s discretion, and it’s usually applied to the higher-rate balances.

Bottom Line on Cash Advances

Credit card cash advances are useful in a pinch but have so many drawbacks that your best strategy is stay out of a pinch.

A lot of consumers have found help through debt consolidation programs. Counselors work with lenders to reduce your interest rates, then your bills are combined into one monthly payment.

But if you need that emergency infusion of cash, be sure to read the fine print.

Other loan options

Some other choices you can make include:

Peer-to-peer loan. These loans are given online directly from individuals, investors or businesses.

Personal loan from bank. If you are in good credit standing with your bank, take advantage of it. A personal loan will probably be cheaper than a credit card advance, so the payoff will be faster.

Convenience checks. These are the blank checks your credit card company sends you. They are linked to your account and you can write a check to yourself and cash it. The drawback is convenience checks are generally treated as cash advances, not credit card purchases. So you’ll get socked with a higher interest rate and pay additional fees.

Payday loan. This is a slightly better option than robbing a bank, but not by much. A lender advances you money that usually must be repaid in two weeks. You generally have to write a post-dated check for the full balance, plus fees, or authorize the lender to electronically debit funds from bank account. If you fail to repay the loan in time, the lender can cash the check or withdraw the money. A typical two-week payday loan charges $15 for every $100 borrowed.

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