The average credit card limit in America is around $8,000. Having this credit available to you can give you peace of mind and provide you with many other benefits.
You may use your credit card to help you buy things you need now. You might use it to assist with unexpected bills. You could even use it to help you cover the time between paychecks.
Most credit cards offer cash advances, which means you can take the money directly from the card. You can then use these funds as you see fit.
Is it a good idea though? In this guide, we’ll look at all aspects of cash advances, including their pros and cons. With more information in hand, you can make a decision about getting a cash advance to help with your bills.
Defining Cash Advances
Let’s start at the beginning and define a cash loan. Your credit card, as you know, has a limit on it. You can spend up to this limit.
As you pay back the money you borrowed, the credit becomes available again. This is why credit cards are known as a type of revolving credit. This is different from an installment loan, where you take out a given amount of money at the beginning of the loan and pay it back over time.
If you have available funds, you can use a cash advance to turn those funds from credit to cash. You may be able to do this with an online cash advance, moving the funds from your credit card to your bank account. You may also be able to withdraw cash from an ATM.
Reasons to Take a Cash Advance
The next question you likely have is why you’d take a cash advance. After all, many merchants accept credit card payments. If you want to use your credit card, you can often do so.
There may be certain times when you can’t use your credit card though. Suppose you need to pay for repairs to your roof or make a payment on another loan. Most of the time, you can’t use your credit card for these sorts of purchases.
There are other situations you may think about using cash advances. They can be helpful if you’re traveling and need access to cash, but can’t access your bank account or take the time to get a no credit check loan.
In these cases, you can still make use of the funds you available with your credit card. You can think of a cash advance as a kind of loan in these situations. When you use cash advances, your credit card works very much like a line of credit.
Drawbacks of Cash Advance Loans
Cash advances have a few drawbacks you want to be aware of before you decide to take one. First, most of them come with high rates of interest. You’ll face a higher rate of interest than what you usually pay on your credit card. The fees won’t be as high as for a payday loan online, but you will see fees generally higher than the interest rate for your regular card transactions.
There may also be extra fees. Some cards charge a flat fee, while others will take a percentage of the transaction. Two percent may not seem like much if you’re taking $200, but it can add up on larger amounts.
There’s also no grace period with cash advance loans. This means interest is calculated from the time you take the money out.
This is a marked difference from making purchases on a credit card. Most credit cards allow a period after purchase when no interest accumulates.
Other fees are also applied to cash advances. If you’re withdrawing the cash from an ATM, you’ll need to pay the ATM fees as well. If there are any foreign currency conversions or international charges, those will also be applied.
Benefits of a Cash Advance
With so many drawbacks, you may be thinking twice about cash advances. There are a few plus sides to consider.
If you already have a credit card, then a cash advance can be a quick and easy way to access cash. This is especially important in an emergency. You may not have time to take out another loan or wait to get paid.
Another plus is that the cash advance is usually available to you anywhere in the world. If you happen to need emergency funds while you’re on vacation, your credit card may be your only option.
There is also good news when it comes to paying back a cash advance. Credit card companies put payments toward higher interest portions of your balance first. Even if you make the minimum payment, it’s going toward paying back the cash advance.
Alternatives to Cash Advance Options
As demonstrated, cash advance loans have a few upsides, but they also have some drawbacks. For the most part, unless you need quick access to funds, a cash advance isn’t the best idea.
In fact, there are usually better alternatives. You could consider borrowing money from friends and family. If you’re in another part of the world, they may be able to send funds via an app or by wire transfer.
If you have access to your bank account, you can also consider overdrawing your account. There is a fee for this, but the bank won’t charge you interest. There may be a limit to what you can take.
You may also be able to use an electronic payment system that accepts credit cards. This way you can make a payment to a vendor that doesn’t take credit directly. You could even use your credit card to buy a prepaid debit card to use for retail purchases instead.
If the situation isn’t immediate, you can also apply for a personal loan. Even if you have bad credit, the terms and interest rates can be more favorable.
Find the Right Solution for Your Finances
There are a few situations when cash advances are helpful. For the most part, you’d be better off choosing another financial option.
Discover more about personal loan options for your finances by reading our blog. We have plenty of informative articles to help you find the right financial solution.