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Do Cash Advances make sense? Good Idea?
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Do Cash Advances make sense? Good Idea?
Rarely. They offer convenient access to fast cash, however, high fees and interest will be expensive. Less expensive alternatives exist.
by Anisha Sekar Anisha is a former personal finance journalist for NerdWallet. She has worked for Silicon Valley startups as well as in the public sector. She has contributed to publications including Technorati and Women Grow Business. She was a mathematician who studied applied economics in Brown University.
Updated October 7, 2022, 1:20 PM PDT
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Sometimes you might find yourself needing cash but you have nothing other than credit cards. You might be at the cash-only café, or the taxi driver won't take plastic. Whatever the reason, cash advances could be a tempting alternative. A cash advance is a short-term loan to the credit card balance. It's a simple procedure that could have expensive results. Most of the time it's not a good idea.
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The problem is cash advances.
Cash advances are simple as visiting the bank teller or ATM or ATM, showing your card and walking out with money. This sounds great however, cash advances are likely to come with fees and/or higher interest costs. Here's a summary of the differences between a cash advance and a regular purchase:
Cash advance fees is, as the name suggests it's one-time charge that you pay when you make your advance. It usually ranges from 3% to five percent of the sum. For instance, if you take out the amount of $200 in cash then the charge of $6 to $10 is added to your account balance.
A higher interest rate: Some cards have a higher APR for cash advances than for regular purchases.
There is no grace period Credit card companies typically provides you with at least 20 days to settle your purchase prior to being charged interest. Cash advances, though, start to accrue interest as early as the day.
Lower credit limit: Some credit cards come with a cash advance credit limit which is smaller than the total credit limit.
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What are alternatives to cash advance?
There are many more . Here are some examples which might be of more interest to you:
Promotions offered by your card's provider: Recently, there have been a few offers, like the possibility to convert your credit into an installment loan without requiring a new loan application. You're still charged interest when you use this option however, you may be able to get a better rate.
An overdraft on your account with a checking account could cost you between $25 and $35 if the balance on your account is negative, but you've authorised the bank to permit the withdrawal in any case. You can choose to not take advantage of this, naturally, but it is an option for cash that is needed for a short period. Be careful, though -Certain banks also charge extended overdraft fees.
The early withdrawal of a CD (CD): This is another option if you need money right away. However, CDs are intended for long-term deposits, so you could end up having your CD canceled.
A This alternative is typically more involved than the other alternatives, since it involves going to a bank and making an application for the loan. Interest rates on 24-month personal loans are lower than that for credit cards in general, but the rates on shorter-term loans that are offered by payday lenders tend to be higher.
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When is a cash advance deemed to make sense?
Cash advances rarely make sense.
When compared to the options listed mentioned above, you could very well discover that a cash advance from you credit card might be the cheapest option once your crunch the numbers (though you may want to think about opening having a bank account with ). However, it's probably not going to be cost-free. If you must get a cash advance it is only sensible to do so when you know you'll have enough money to pay it back quickly. In the event that you don't, the interest can pile up with every passing day.
The balance might tip in favor of cash advances if you're using a card with no cash advance fee. In this situation, you'll need to worry about the interest payments.
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Even better: Avoid needing an advance
Build up an emergency fund to cover unexpected expenses. You might want to set up automatic deductions to transfer money from your main checking account to an "rainy day" account or explore some ways to earn extra money on the side.
If you find yourself considering cash advances purely because you've forgotten to carry cash, though, you may want to check out debit cards with . So, you'll be able to access ATMs near you without getting slapped with an out-of-network charge.
About the writer: Anisha Sekar is a former personal finance writer at NerdWallet. She has worked with Silicon Valley startups and in the public sector. She completed her applied maths and economics at Brown University.
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