A cash advance is a short-term loan from a bank or alternative lender that allows you to access money without applying for a formal loan. It is also a service provided by many credit card issuers that allows cardholders to withdraw a certain amount of cash. Cash advances do not require a credit check and can provide funds immediately, but they come with fees and interest that can quickly add up. When you're having financial problems, you may consider taking out a cash advance on your credit card.
A cash advance is a way to access money without applying for a formal loan. Basically, you're borrowing with your credit card to put cash in your pocket. However, accepting a cash advance by credit card has costs and, in some cases, limits on the amount you can withdraw.
How Does a Cash Advance Work?
A cash advance allows you to borrow a certain amount of money against your credit card line of credit.You usually pay a fee for the service. Unlike standard credit card purchases, which offer a grace period between purchase and the payment due date when interest is triggered, a cash advance transaction usually starts accruing interest immediately. This option could free up cash in your budget and would not incur additional charges or a higher APR of a cash advance. You will pay compound interest on the advance from the first day the cash is issued plus an upfront service charge.
What Are the Costs of Taking Out a Cash Advance?
First, the interest rate charged by a credit card on cash advances is usually much higher than the rate charged on purchases.Additionally, you may have to pay a service fee if you request a cash advance at an ATM like you do for any other transaction. Cash advances often start accruing interest at the time of withdrawal, meaning there is no grace period.
Are There Alternatives to Taking Out a Cash Advance?
If you're short on funds and can't charge an expense, consider overdrawing your checking account with your debit card instead of taking out a cash advance. Bank of America assigns APR to direct deposit and cash advances with checks and a higher APR to banks' cash advances, including ATM transactions, over-the-counter, overdraft protection and equivalents. This will be expensive if your credit is not good, but interest and term charges will continue being more favorable than a cash advance.Conclusion
Getting a cash advance may seem like a good idea right now, but it can quickly lead you to accumulate debt.Keep in mind that withdrawing a cash advance from an ATM will likely incur a fee from the bank or company operating the machine. Consider all of your options before taking out a cash advance and make sure it's the best choice for your financial situation.
