Did you know the average American has four credit cards to their name? There are probably a few reasons you have one yourself.
A credit card can help you build a credit score. It may help you make a big purchase you don’t have the cash for right now. It may even help you manage your cash flow.
Did you know your credit could also give you access to cash? Cash advances are a type of loan you can use to get the funds you need from your credit card.
What are the pros and cons of cash advance loans though? This guide will review everything you need to know.
The Pros of Cash Advances
Cash advance loans have a few advantages. First, they’re a quick loan. You can often access one by using an ATM.
A cash advance is drawn against your credit card limit. So long as you have available credit on your card, you can withdraw the amount of cash you need.
This is good news if you happen to be taking a taxi and the driver can only accept cash. It’s also helpful if you’re at a cash-only café or you need to pay someone in cash for their work.
A cash advance is less expensive than other types of loans. It may also be the only option you have sometimes.
The Cons of Cash Advance Loans
Most of the time, cash advances aren’t a good idea. They have quite a few more drawbacks than other loans.
The first issue is that they usually come with high-interest rates. Most cards impose a higher interest rate on cash advances than regular purchases.
Most also impose extra fees as well. So, you’ll often end up paying more for the cash advance than you would for purchasing the card. It can also be more expensive than overdrawing your bank account.
You may also find you have a lower limit for cash withdrawals than your card. Check your card for a “cash advance limit.”
Cash advances also have no grace period. With regular purchases on your card, there’s a period when the purchase collects no interest. If you pay it off before the grace period expires, you pay no interest.
Cash advances start collecting interest right away. So, you have extra fees and a higher interest rate that’s being charged right away.
Finally, a cash advance can also hurt your credit score. This is especially true if you don’t pay it off right away.
When Does a Cash Advance Make Sense?
Cash advances aren’t usually a great option. They can make sense in a few situations. You might want to consider a cash advance when:
- You have no other way to access cash
- You only need a small amount in an emergency
An example is heading to a cash-only café and realizing you have no way to pay once you’re there. If there’s an ATM nearby, the cash advance can help you get the money you need.
If you need cash and your bank account is overdrawn, you’re not getting paid soon, and you have no other access to credit, a cash advance could make sense.
Otherwise, you’re usually better to consider your other options. A cash advance should be used as a last resort.
What Other Options Are There?
You have plenty of options. Unless you’re sitting in the cash-only café or in a taxi that’s only accepting cash, you should be able to try one of these other choices.
Your first option might be to put overdraft protection on your bank account. This usually means you can overdraw the account by a certain amount. You’ll be charged interest for overdrawing, but this is often at a lower rate than a cash advance from your credit card.
If you need cash now, you may also be able to qualify for a payday loan or an online loan. These types of loans can help you get access to the cash you need, usually in just a few minutes. You can learn more here.
If you need a few dollars, you might even consider borrowing money from a friend or relative.
What’s the Best Option to Borrow Money?
You might think a cash advance is a good way to borrow money. In some ways, you’re already “approved” for it, because it’s attached to your credit card.
You have so many other options. Unless you’re in a situation where you need immediate cash and have no other way of getting it, a cash advance probably isn’t the right choice.
If you have the time, do some research on your other options. You can compare loans online. You can also talk to your bank or another moneylender.
Make sure you compare interest rates, terms, and more. Also, assess your ability to repay. A personal loan that lets you pay it back over two weeks may be a better option than the cash advance.
Avoid a Cash Crunch
One of the best things you can do is ensure you don’t need to use the cash advance feature of your credit card. Building an emergency fund or having access to another emergency loan option could help you avoid this situation.
Also, consider putting overdraft protection on your bank account. Always carry more than one method of payment, such as a debit card, with you. By following these steps, you should avoid putting yourself in a situation where you need to use a cash advance.
With so many other choices out there, keep the cash advance in your back pocket as a last resort. It can work in a pinch but try other options first.
Financial Advice for a Better Tomorrow
So there you have it! This comprehensive look at the pros and cons of cash advances should give you a good idea of whether they’re worth it.
If you still need cash now, you have plenty of other choices. You can often get a better loan in place fast, so don’t feel like you’re stuck with the cash advance.
Looking for more great financial advice? Check out the archives for all the best tips and tricks. Finance your life in a way that suits you!