Is a Credit Card Cash Advance a Good Idea?

2020-11-22T20:00:59-08:00November 11th, 2020|Credit & Debt|

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Is a Credit Card Cash Advance a Good Idea?

When you need money to cover an unexpected expense, a credit card cash advance is one option you might consider. 

Credit card cash advances can put cash in your hands quickly, though there’s often a price to pay for that convenience. Before withdrawing cash from a credit card, it helps to weigh the pros against the cons to help decide if it’s the best way to borrow.

How a Credit Card Cash Advance Works

A cash advance is essentially a type of short term loan. You’re borrowing against your card’s credit limit. 

The amount you can withdraw using a cash advance can depend on your card issuer’s policies. 

For example, if you have a $5,000 limit, you might be able to withdraw $1,500 of that in cash. 

Depending on what your card offers, you may be able to complete a cash advance online and have the money deposited to your bank account. Or your card issuer may allow you to withdraw cash at an ATM or by writing a convenience check from your account.  

Amounts you withdraw using a cash advance reduce your available credit limit. Similar to purchases, cash advances are repaid with interest.

RELATED: Personal Loans vs. Credit Cards: What’s the Difference?

Credit Card Cash Advance Pros and Cons

If your credit card allows for cash advances, you may have a ready source of cash available if you need money in a pinch. But before you take a cash advance from your card, consider how that could help — or hurt — you financially first. 

Pros

  • Credit card cash advances are convenient, since you can borrow money relatively quickly.
  • There’s no credit check required to get a cash advance from a credit card you already have. 
  • You can use the money from a cash advance to cover virtually any type of expense. 
  • Cash advances can be less expensive than other types of short term loans, such as payday loans. 

Cons

  • Cash advances may be subject to a much higher APR than regular purchases.
  • There is no grace period for cash advances; interest begins accruing right away. 
  • Cash advance fees can get expensive and add to the total amount you have to repay. 
  • Increasing your card balance could negatively affect your credit utilization ratio and credit score. 

RELATED: How To Know If You Have Too Much Debt

When to Use a Credit Card Cash Advance (and When Not To)

Using a credit card cash advance could make sense in situations where you don’t have any other means to get the money you need or you know you can pay the advance off relatively quickly. 

The key thing to know about credit card cash advances, aside from the fact that you’ll likely pay a fee to get one, is that credit card companies calculate interest differently. Not only will your APR for a cash advance likely be higher but that interest starts accruing as soon as you take the advance. So the faster you can pay it off, the better when it comes to saving money on interest. 

On the other hand, a credit card cash advance may be worth thinking twice about if you have other borrowing avenues open to you or you know that you’ll need more time to pay back what you borrow.

RELATED: Emergency Loans – How to Borrow Money Fast

Credit Card Cash Advance Alternatives

Withdrawing cash from your credit card isn’t the only way to borrow money quickly. There are other ways to get the money you need that could prove less expensive, in terms of interest and fees. 

Make a credit card purchase instead

If you have an expense that you can charge to your card, that might be preferable to a cash advance. You won’t pay a cash advance fee and the APR for purchases may be lower than the cash advance APR.

You may also look into transferring the balance to a card with an introductory 0% APR to cover the purchase. Just keep in mind that you’d need to pay the balance in full to avoid interest charges and a balance transfer fee may apply. 

Borrow from friends and family

Asking people you know for money may not be ideal. But it’s another possibility for borrowing on short notice. 

If you get a loan from friends and family, consider drawing up a written agreement outlining how you plan to repay it. And of course, make sure you can stick to that agreement once it’s in place. 

Apply for a personal loan

Personal loans can be an attractive way to borrow, especially when interest rates are low. If you have a good credit score, you might find a personal loan with an APR that’s well below what your credit card charges. 

If you’re interested in a personal loan to cover short term expenses, take time to compare options first. Shop around with multiple lenders to see what they offer in terms of loan amounts, repayment terms, interest rates and fees.

What happens if you can’t get prequalified for a personal loan?

If you’re denied for a personal loan prequalification, you may be wondering whether you can change the lender’s mind or what other options you have for borrowing. Try these steps next if you’re unable to get prequalified initially:

  • Ask for reconsideration. Reach out to the lender you applied for prequalification with to find out why you were denied. If the reason was a lack of paperwork or a past credit mistake, you could ask them to reconsider. But you’ll need to be able to prove your ability to repay what you borrow. 
  • Double check your credit. If you only checked one of your credit reports prior to prequalification, it’s possible that you might have missed something that’s hurting your credit. Late payments and high credit utilization can work against you but credit reporting errors can as well. If you spot an error on your report, you can dispute it with the credit bureau that furnished the information. 

RELATED: Can’t Qualify for a Personal Loan? Here’s How to Fix the Problem

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Rebecca Lake

Rebecca Lake is a freelance writer specializing in personal finance, credit and debt. She’s a contributor to U.S. News and World Report, Forbes Advisor and The Balance and her work has appeared online at CreditCards.com, MyBankTracker, Money-Rates.com and dozens of other top publications.

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