What is a Cash Advance? (And Why There are Better Options)
We’ve all been there. Your cash flow is low and you need funds now. Many people turn to a credit card cash advance. However, there are downsides to doing so. In fact, there are better options available. With that in mind, we’ve dedicated this article to explain what does cash advance mean, how they work, and alternatives. Let’s get started!
What is a Cash Advance?
Cash advance loans are short-term loans that can be used to cover emergencies. They are also used by people who have difficulty qualifying for other types of loans. These loans usually come with very high-interest rates and fees. They can be a very costly way to borrow money.
While convenient, they are also costly.
Now that you know the answer to “What’s a cash advance?” let’s explore how they work.
How Does Cash Advance Work? (And How to Cash Advance on a Credit Card)
Cash advances are taken out through the use of a credit card. The money is then withdrawn from an ATM or directly from the banks’ cash register.
The interest rate that is charged on these loans is usually very high, sometimes in the range of 12% or higher. The fees that are associated with these loans can also be very high. These fees can include late payment penalties and overpayment charges. While most cash advance lenders offer a loan for $500 or less, some companies do offer much higher loan amounts.
How Do Credit Card Cash Advances Work?
A credit card cash advance is a form of borrowing money that allows you to draw funds from your credit card right away. Let’s explore the downsides and benefits that come with taking out an advance.
Credit Card Cash Advances: Benefits
What is a cash advance credit line and what are its benefits?
A cash advance can be defined as a loan taken against your future paycheck. It is considered to be a temporary solution to bridge the gap between payday and when your next check arrives. Credit cards are the most popular form of cash advances where you borrow money from your credit line for use on that particular card. Other forms of credit lines include pawn loans or payday loans.
The average cost for borrowing money with a credit card is typically around $10-$15 per $100 borrowed.
One big benefit of a credit card cash advance is the convenience factor. With a cash advance, you can get money when you need it. You can take out the advance online, over the phone, or at a branch of your credit card issuer. You can have the funds in your bank account within 24 hours in some cases or even less depending on your credit card provider and the state where you live. Another benefit of a cash advance is that there are no collateral requirements, so if you have bad credit or no assets to speak of, you may still be approved for one.
While credit card cash advances are relatively convenient and simple to obtain, it can be tempting to use them for non-emergency expenses. Because the process of getting a cash advance is so easy and so quick, you may find yourself relying on them more than you should. You can easily gain access to a reasonable amount of money within an hour using this method, so it’s easy to see why they can be abused. If this happens to you, then you may want to consider getting help as soon as possible.
Credit Card Cash Advances: Disadvantages
Cash advances are convenient but come with some drawbacks.
Although credit card cash advances seem like a quick and easy way to grab money in an emergency, these short-term loans come with consequences—and not just the high-interest rates that many people associate with debt. To make the best decision possible, it’s good to know what you’re getting yourself into.
The following are some of the disadvantages of credit card cash advances:
1. Cash advances take a long time to pay off.
If your credit card cash advance carries an APR (annual percentage rate) of 20 percent or higher, it can take up to a year just to pay off the interest on your loan. And because of the high-interest rates and potentially high fees charged by credit card cash advances, it can take much longer to pay off the money you borrowed.
2. Credit card cash advances can hurt your credit score.
If you take out a credit card cash advance and don’t keep up with your monthly payments, it can negatively impact your credit score. This can impact your ability to get approved for future credit as well as the interest rate you’re charged if you do get approved for a loan.
3. Credit card cash advances can increase your debt to income ratio.
When you take out a credit card cash advance, it can increase your debt-to-income ratio up to 30 percent—meaning that the amount of debt you carry is greater than 30 percent of your annual income. This can make it more difficult for you to qualify for a loan when you are applying for a mortgage or car loan and may also affect your ability to buy the house or car you want.
4. Credit card cash advances can erode your savings.
The money you borrowed on credit card cash advances doesn’t just sit there; it is being spent. As you continue to make payments, the amount you owe will decrease because of the principal reduction (which is the amount by which your principal balance decreases each month). However, that doesn’t mean that you really have less debt. Whenever you take a cash advance, part of what was supposed to be available for additional spending is now being used to pay off your loan.
Credit Card Cash Advance Fees: Why Are They So Expensive?
A credit card cash advance fee can be very high, but there are ways to avoid them.
If you find yourself stuck in a bad situation with your credit card and you need some fast cash, the last thing you want to hear is that it’s going to cost you $60 or more. After all, this isn’t something that most people can afford when they’re struggling just to pay their bills. If only there was an easier way…
Alternatives to Cash Advance Credit Lines
As you can see by our detailed explanation of “what is a cash advance?” these are not always the best option for people who need cash fast.
When it comes to getting a cash advance of sorts, there are many different and conflicting opinions and recommendations. But the reality of the matter is that you might need some help if you find yourself in a tight cash situation. Here, we will go over what we believe to be the best options — alternatives to cash advance credit card lines — for making some quick money.
Loans and lines of credit from family and friends
You can ask the people you know for a short-term loan. They may be willing to lend some money — but it’s important that you pay it back as soon as possible.
The drawbacks: Loans from family and friends come with an emotional cost. If you can’t pay the loan back fast enough, you’ll have to deal with their disappointment — or worse. That’s probably not something you want to burden your loved ones with.
Also, the interest rates may be high when borrowing money from family and friends (it’s almost like they’re lending their money at a loss).
Many people don’t know about this option, but if you have a strong credit rating and a lot of cash in your savings account (at least $1,000), you can get a loan from your bank. The interest rate is usually low and the process is fairly quick. And if you’re really desperate for cash, there are online banks that will lend you money.
The drawbacks: Some banks may require collateral for the loan.
Credit Card Promotional Offers
A quick way to get some money is to use a credit card. With this option, you need not borrow money from family or friends just to make your regular monthly payments. However, if you can’t pay the full amount of the bill back in full and on time, that’s when you need to figure out what else you can do. It’s also important to note that if you’re behind in payments, it may be difficult — but not impossible — to get a cash advance with your credit card.
Credit card cash advances are not available in all states.
Some credit cards are easier to get than others — and the rules may change from time to time. So it’s important to do a bit of research on your specific card before you start using it for cash advances.
There is a fee for using your credit card for a cash advance (about 2% of the amount of the advance).
After all the above options, there are still other, slightly more advanced alternatives to a cash advance credit line.
If you’re looking for a fast way to get cash, one option is to apply for a loan online via a platform like Tower Loan. The lenders are real people and the interest rates are low.
Your personal loan maybe with a bank, but when it comes to getting the money you need, things can get complicated. When your bank refuses to give you a loan or the rate they charge is just too high, look for alternative lending options that might fit your needs better.
Tower Loan is one of the top personal loans companies in the United States and can provide you with lower rates and flexible terms when most banks cannot offer these features.
You can apply for a personal loan with Tower Loan online and your money will be deposited into your bank account within 24 hours after your application has been processed.
Choose Tower Loan
In the world of bank loans, there are certain financial institutions that stand out from the rest. Tower Loan is one of these loan companies that is known for its outstanding customer service. The company has built an impeccable reputation for providing educational, clear, and reliable financing services to consumers in need.
Tower Loan is a lending company that can provide you with low rates, low fees, and quick funding.