What Is a Cash Advance

What Is a Cash Advance |‌ Bridgepayday

You might be able to get a cash advance on your credit card if you are in financial trouble. Payday loans and other short-term financial aid are available via the use of cash advances. No credit check cash advances are available right now.

Cash advances can be used immediately, and the amount of interest and fees you pay will depend on how long it takes to repay. Cash advances are limited in cash availability, so they may not be enough to cover significant expenses.

Different types of cash advances

Credit Card Cash Advances

Many credit cards offer a cash advance feature called a credit card. The borrower receives cash or an equivalent cash amount, usually up to 20% or 30% of their available credit limit. You can withdraw up to 50% of your credit limit with some cards.

Merchant Cash Advances

Merchant cash advances (MCAs) are funds that small businesses can get based on their past sales and projections of future sales. You will be eligible if your company has a steady flow of debit and credit card sales each day. You can get the funds within days by filling out a simple application.

Payday loans

Payday loans allow you to access future payments from your employer. The payday lender will usually require proof of income, such as a pay stub. You can access funds online or at a physical location.

How does a cash advance work?

Each type of cash advance has a slightly different process.

It is possible to receive a short-term cash loan from a bank or ATM using your credit card. In contrast to a bank withdrawal, a cash advance must be repaid like any other credit card transaction. To put it another way, it’s like using your credit card to make a cash purchase instead of buying anything tangible.

Credit Card Cash Advances

Cash advances can be accessed at any ATM or financial institution that accepts your card. You can also write a convenience check to access the cash advance. Access checks are also known as convenience checks and are periodically sent with your credit card statement.

Some merchants may also consider specific credit card usage a cash advance. Some transactions can be regarded as cash advances, such as:

  • When opening a bank account, make your initial deposits
  • Credit cards that provide overdraft protection for checking or savings accounts
  • Orders for foreign currency, traveler’s checks, or money
  • Virtual currencies or gold
  • Wire transfers
  • Lottery tickets, Casino chips, and Gambling wagers
  • Gift cards and Prepaid Cards

The advance will accrue compound interest from the day it is granted, plus an upfront service fee. A majority of credit card companies limit the amount of your revolving credit that can be used for cash advances to a small portion. This amount can be found on your monthly statement or when you log in to your account online.

Merchant Cash Advance

Credit card providers do not typically extend merchant cash advances. Instead, they are made available with payment processors for credit and debit card sales. 

Merchant cash advances are not like a loan. Your daily sales are the basis of your repayment. You will pay a daily amount based on your daily sales, 1.2 to 1.5.

You can borrow $15,000 at a rate of 1.3. You’ll need to repay $19 500 plus any origination fees.

This means that your daily payments may rise if you have high sales. It could also reduce your cash flow. The fees will also decrease if sales fall. However, during the pandemic, complaints were made by the FTC that not all MCA processors performed the “true-ups” to reduce payments when sales fell.

Payday loans

These are short-term, low-interest loans with a small amount secured by a deferred transaction. The borrower must provide a post-dated personal or electronic check. Although they are known as payday loans, funds can be connected with other income such as a pension or social security.

Although these loans are often less than $500, they can have high fees. A payday loan borrower must pay finance charges of $10-30 per $100 borrowed. These fees are added to the loan principal at the transaction date.

If you assume a $15 finance charge per $100 borrowed on $400, then your fees and loans would amount to $460 by your next paycheck. This is often in two weeks. These fees are calculated as an annual interest rate and cost you over 390%.

Lenders in some states can roll over loans or renew them if the borrower cannot repay the loan and all fees. These fees can include late payments, finance charges, or insufficient funds fees, depending on where they are located. Payday loans are almost always cheaper than other options.

Cash Advance Credit Cards

There are several ways to lower the cost of a cash advance using a credit card. The majority of credit cards charge a fee or a percentage. Consider a Capital One Venture credit card, which offers a 3% cash advance rate. This is in contrast to the 5% charge.

Cash advances are charged at a different rate from credit cards that is often higher than the purchase APR. Cash advances are subject to a different APR, so make sure you shop around for the best cash advance rate.

The PenFed Platinum Rewards Visa is one of the most popular credit cards for cash advances. This card makes cash advances much easier by charging no fees and offering a 17.99% APR on cash advances lower than the industry average.

Why are cash advances so expensive?

Fee Structure

Both interest and up-front fees are included in credit card cash advance fees. The up-front fee is usually either a flat fee or a percentage of the cash advance. The cash advance transaction is processed the same day that the payment is posted to your account. The standard flat fee ranges from $5 to $12, 3% to 8%, and the up-front flat fee is generally between $5 and $12.

Cash advances are not available on most cards with grace periods. The cash advance will be charged interest as soon as it is posted to your credit card. The APR on cash advances is much higher than on purchases, and most credit cards have this rate. Cash advance interest rates usually range between 17.99% and 29.99%.

Different types of cash advances may have other APRs. Some cards offer different APRs. Bank of America assigns an APR to check cash advances and direct deposits. In contrast, a lower APR is given to bank cash advances, including ATM, overdraft protection, and cash equivalent transactions. To find out more about your card, read the terms.

Potential Costs

The amount of your credit card cash advance will often be limited to a certain percentage of your revolving credit limit. If you have a credit limit of $3,000, the cash available to you is $600. You would pay $24 upfront and $13 interest for a 30-day billing cycle at a standard 24.99% APR. 

You will pay almost $236 in interest over 32 months if you make only the minimum payment, $27. To borrow $600, you’d need to pay $260 in fees and interest.

You should also consider additional fees. The bank or company that operates the ATM may charge a fee if you withdraw cash from it. A foreign transaction fee may be required if you ask for a cash advance in foreign currency. You may also be charged a foreign transaction fee if the foreign currency is accessed at an ATM.

Unexpected fees could be incurred if you use convenience checks issued to your credit card provider. If you send a review exceeding your cash advance limit, your credit company might not honor a statement. Luke W. Reynolds, Chief of the Community Outreach Section at the FDIC, stated that a returned check might result in returned-check fees or over-limit fees from the credit card provider.

Prior to writing a convenience check, call your credit card provider and double-check that the cash advance does not go over your limit.

Before transferring this cheque into your bank account, Reynolds advises phoning your credit provider. If the review is not fulfilled or you use the money, you may be charged overdraft fees.

Cash advance checks are not the same as promotional checks banks may offer. You can access funds at a lower interest rate than a cash advance, or sometimes even less than your regular APR. If you have higher interest rates and need to pay bills, these promotional APR checks may be a good option. Before you use a review, make sure you check with your bank to confirm which type you have.

Last but not least, if your credit card provider is unable to collect your payment for 60 days, they could apply a penalty interest rate.

Cash Advances: The pros and cons

Pros

  • Access to unsecured funds quickly and without collateral
  • It’s easy to get – no credit checks or underwriting required

A cash advance may seem like a fair alternative for someone who would otherwise have difficulties getting credit and wants funds immediately, but it should only be explored if a realistic plan to return the money soon is in place.

A credit card cash advance is preferable to a payday loan because of the lower interest rates and more options available with a credit card cash advance.

Cons

  • High APRs and fees
  • Credit card cash advances accrue interest immediately upon receipt. There is no grace period.

Additional considerations for cash advances

  • Cash advances on credit cards do not earn reward points
  • Convenience checks offer less protection and security than credit card purchases.
  • Your credit card may require a PIN to obtain a cash advance at an ATM.
  • Merchant cash advances are not unsecured. However, you might be required to sign a personal assurance that you will repay the money even if your business goes out of business.
  • Payday loans and merchant cash advances often require a triple the APR repayment.

Alternatives to Cash Advances

Personal Loan

Consider a secured or unsecured personal loan if you have excellent credit. The interest rates for cash advances are usually lower than cash advances, even with the possible origination fee and interest. This option will require more paperwork and take longer.

 A personal loan may be a better option if you have a greater need for money. However, it will take longer and require more paperwork.

Retirement Account Loan

Contributions to a Roth IRA can be withdrawn at any time, without penalty. You can withdraw funds from tax-advantaged retirement accounts such as 401(k), and Traditional IRAs without liability. These choices let you refund the money within a certain time limit. Learn more about how the CARES Act has affected retirement account rules during COVID-19.

Negotiate a payment plan

If you cannot make your payment, contact your creditors or service providers. Those who have excellent credit may be able to get cheaper interest rates. Users should know the costs of accepting a payment extension from creditors.

You can request a payment plan for other bills, such as utilities. You can request a payment plan for other bills like utilities, thanks to COVID-19.

Use your Credit Card to Pay Your Bills

Consider putting any bills you regularly pay with cash or an ACH from your checking account on your credit card. There may be a convenience fee for certain purchases, but car insurance, cell phone, and internet bills are usually free. This option can help you free up some cash and incur additional fees or higher APRs than a cash advance.

Chime

Chime offers several features that will help you get your money faster.

Direct deposit to your Chime account allows you to access funds when Chime receives the payment. This could be up two days before the scheduled payment. The date your employer releases funds will determine how early your paycheck arrives.

SpotMe is a feature that allows Chime accounts to receive up to $20 in fee-free overdraft protection for debit card purchases. Chime can increase the SpotMe limit up to $100 based on your account history, risk factors, and other factors. (SpotMe does not apply to ATM withdrawals or ACH transfers, Pay Friends transfers, Chime Checkbook transactions, and Chime Checkbook transactions.

SpotMe Overdraft Protection for Debit Card Purchases would be less expensive than a Cash Advance, but it will cost you less.

In What Ways Might a Payday Loan Damage Your Credit?

A cash advance will only serve to increase your credit card debt. Your credit scores might take a hit if you use more of your available credit as a result of this additional load. Use less than 30 percent of your total available credit as a general guideline to preserve a low usage rate on your card.

As a result of high-interest loans, you may find yourself unable to pay your debts on time. Since payment history is one of the most important components of your credit score, if you miss a payment, your credit might suffer.

Even if you don’t intend to spend the money, you should avoid cash advances because of their exorbitant interest rates and costs.

Are Cash Advances Right for You?

A cash advance can be a quick and cost-effective way to get funds for urgent situations. You should ensure that you have enough cash on your credit card to cover the cash advance and that you plan to repay the cash advance as soon as possible. 

Remember that the credit cash advance line you have is usually only a tiny percentage of your total credit line. Interest charges begin immediately.

Be sure to understand all fees and explore your options. Cash advances are often cheaper than cash advances in many cases. Merchants should carefully read all terms and conditions. If you are required to guarantee repayment personally before, you will want to look at other options.

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Senior Personal Finance Writer at Bridgepayday | Website | + posts

A writer and editor for over a decade on finance for national technical and consumer readers, Julia Kagan is the editor in the past for Consumer Reports and Psychology Today. Her experience editing business books includes serving as the charts editor for Ahead of the Curve: A Commonsense Guide to Forecasting Market and Business Cycles written by Joseph H. Ellis (Harvard Business School Press 2005) as well as editing The Trial of a Social Security Disability Case by Marvin Schwartz (The Social Security Disability Foundation 1983).

Author: Julia Kagan

A writer and editor for over a decade on finance for national technical and consumer readers, Julia Kagan is the editor in the past for Consumer Reports and Psychology Today. Her experience editing business books includes serving as the charts editor for Ahead of the Curve: A Commonsense Guide to Forecasting Market and Business Cycles written by Joseph H. Ellis (Harvard Business School Press 2005) as well as editing The Trial of a Social Security Disability Case by Marvin Schwartz (The Social Security Disability Foundation 1983).