What Is a Cash Advance?

A cash advance is a small, short-term loan available through banks, credit cards, lending apps, and other sources. Cash advances can provide money in a hurry, but often have high interest rates and fee🐽s.

Types of Cash Advances

Cash advances come in a variety of forms, s💫ome more expensive than others.

Credit Card Cash Advances

The most common form of cash advance today involves borrowing against your credit card's line of credit. You can withdraw the money at an ATM or, in some cases, use a check that you deposit or cash at a bank, commonly known as a convenience check. 澳洲幸运5官方开奖结果体彩网:Credit card cash advances usually carry an interest rate that is higher than the 澳洲幸运5官方开奖结果体彩网:rate for regular purchases on that same card. What's more, the interest typically begins to accrue immediately, with no 澳洲幸运5官方开奖结果体彩网:grace period.

These cash advances often include a fee as well, either a flat rate or a percentage of the advanced amount. Additiona✱lly, if you use an ATM to access the cash, ✨you might be charged a small usage fee.

Credit card companies treat cash advances as separate from purchases, with separate balances on your account statement. You♎r monthly payments can be applied to both balances, but if you only pay the minimum amount due, the card issuer is allowed by federal law to apply it to the balance with the lower interest rate. As that is invariably the rate for purchases, the cash advance balance ca𝓀n sit and accrue interest at its high rate for months.

Any payments you make that are over the minimum must first be applied to the highest interest balance, so paying more than the minimum will help you reduce your debt faster.

In most cases, credit card cash advances do not qualify for no- or lo﷽w-interest-rate introductory offers. On the plus side, they are quick and easy to obtain, making them potentially useful in a financial emergency.

App Cash Advances

澳洲幸运5官方开奖结果体彩网:Cash advance apps like Varo, Payactiv, MoneyLion, Dave, EarnIn, and Empower are another option today. They typically offer advances of $1,0🧜00 or less and must be repaid within a short time frame, such as 30 days or when you receive your next paycheck.

The interest rates these apps charge also tend to be high, over 100% in some cases when expressed as an 澳洲幸运5官方开奖结果体彩网:annual percentage rate (APR). Plus, you may have to pay other fees.

Expensive as they may be, cash advance apps tend to charge far less than payday loa🍎ns.

Merchant Cash Advances

澳洲幸运5官方开奖结果体彩网:Merchant cash advances are issued to businesses in need of quick cash to fund their activities and are often repaid out of the company's credit card and debit card receipts, sometimes on a daily basis as that money comes in. As such, they may be considered an advance against future sales rather than as a loan. They can also be easier and faster to obtain than traditional business loans.

Payday Loans and Payday Alternative Loans

In consumer lending, the term "cash advance" can also refer to 澳洲幸运5官方开奖结果体彩网:payday loans issued by specialized lenders online or in local storefronts. Based on the borrower's next paycheck and often limited to $500 or less, these loans are characterized by sky-high interest rates or fees, sometimes as high as 400% in APR terms. For that reason, payday loans are outlawed or restricted in many states.

Some lenders, including certain banks and credit unions, now offer payday alternative loans (PALs). These are also small, short-term loans but with much more affordable rates. They typically range from $200 to $1,000 and need to be repaid within months.

Some employers offer payday loans or advances on ꦕpaychecks as a service to their employees. Terms vary, but often no fees or interest are charged. The Payactiv app men💜tioned above is also used for that purpose.

Do Cash Advances Impact Your Credit Score?

Taking ou⛄t a 🅠cash advance can affect your credit score in several ways.

First, if you take the advance from a credit card, it will raise your outstanding balance, which will in turn raise your credit utilization ratio, a measure that 澳洲幸运5官方开奖结果体彩网:credit scoring 🅰models take into account in calculating your s🍬core.

If you owe $500 on a card with a $1,500 limit, for example, your credit utilization ratio is about 33%. However, if you then take out a $300 cash advance on that card, the balance will jump to $800, resulting in a credit utilization of more than 53%. Generally speaking, the scoring models and lenders favor a credit utilization ratio of 30% or less.

However, if you have a higher credit limit on your card or multiple cards with their own limits, that $300 would have less of an impact on your overall ratio. For example, the average credit card limit for all Americans in late 2023 was $29,855, according to the credit bureau Experian, so another $300 in debt is unlikely to have much impact.

Where a cash advance could hurt y⛄our credit 🔯score is if the interest builds up to an extent that you are unable to repay it.

Cash Advance Pros and Cons

Except for costly products like payday loans, a cash a🅺dvance can be a reasonable option for someone who has an emergency need for money🌊 and limited resources for getting it—especially if they have a realistic plan for paying the money back within a short period.

But cash advances ar൩e a bad idea in these situations:

• Just before declaring bankruptcy. Credit card debt does not magically disappear in 澳洲幸运5官方开奖结果体彩网:bankruptcy. Your creditors and a judge will examine your debts, including the dates and types. Once you have any inkling that you may be filing for bankruptcy, credit card use of any kind can be considered fraudulent. A cash advance immediately prior to filing is very likely to be challenged by the card issuer, and that account may be excluded from the debts that are forgiven in bankruptcy.
• To pay a credit card bill. A cash advance is an expensive way to pay bills of any kind. Given the immediate interest charges and added fees, using one to pay a credit card bill is likely to sink you even deeper into debt.
• To buy something you can't afford. Using a cash advance, or any other form of borrowing, to pay for something you can't afford in the first place is never a good idea.

The Bottom Line

Cash advances can provide a short-term solution in cash-flow emergencies. However, if🍒 they become a habit, or if you find you regularly need a cash advance to make ends meet, then some serious budgeting and spending changes could be in order.