Sometimes, you can find yourself in financial crisis and can’t seem to find a way out. In most cases, they are emergencies and you cannot wait for your salary to do what you have to do. When you find yourself in such situations, you can rely on a cash advance. Cash advance is an arrangement that allows you to use your credit card to take out a short-term loan from the bank. Cash advance is different from a payday loan. With a payday loan, you can even access the loan from a payday store and you will need to pay back by the next payday.
Although a cash advance is a short-term loan, you do not need to pay by the next payday. This loan is taken from your credit limit. This is how it works, instead of using your credit card to make purchases, you will be making withdrawals from the ATM using this card. Unfortunately, cash advances are expensive and the credit card company will check your credit score before approving this loan.
How Much Can I Access?
There is a limit to the amount you can withdraw as a loan. You cannot receive more than your credit limit. Your credit limit is the amount you are given for purchases. You can check your credit statement or log into your account to check your credit limit and the amount available for cash advances.
Fees and Interest Rates
Cash advances are expensive but there is no general rate. The rate depends on the company, however, some companies charge fixed rates while others charge a percentage of the total amount. Your credit card company will inform you about the rate. Another thing to note is that cash advances do not have grace periods. The interest will start accumulating the moment you receive the cash advance. You will also pay processing fees and even ATM fees when the process is complete.
How Do I Pay Off My Cash Advance Balance?
Since cash advances are expensive, it is essential to clear them quickly. Cash advance balances are separate from your purchase balance because the interest rates are different. Your payments will be split between the two. However, the credit card company will apply your payments to the balance with the low interest first. Usually, the balance with the low interest is the purchase balance. If you make minimum payments, it will only be used to clear your purchase balance. If you want payments to be applied to your cash advance balance, you will need to pay more than the minimum payment required. This will help you to clear the cash advance balance faster.
Some Purchases Can Also Be Considered Cash Advances
You do not need to always physically withdraw funds for it to be termed cash advance. Some transactions that do not involve withdrawal are also considered cash advances. If you set your credit card up for overdraft protection, any overdraft amount will be classified as a cash advance. If you also purchase cryptocurrencies, make wire transfers, or money orders, those transactions will be put your statement as cash advance balances. Your credit card agreement can tell you more about this arrangement.
Alternatives to Cash Advance
If you do not want to incur those expenses that come with cash advances, you can consider these options. You can opt for a personal loan. Personal loans are great, especially if you have a high credit score. If you have a good credit, you can access personal loans at lower interest rates. This will save you some cash. However, if you have a bad credit, you should weigh the cash advance and the interest on personal loans. If a lender is willing to offer you a personal loan at a lower interest rate than the rate offered for a cash advance, then you can go in for the personal loan.
You can also choose to overdraw your checking account with your debit card. This transaction attracts a fee but there are no interest rates attached.
You can also resort to borrowing from family or friends. This is a cheap alternative since you may not need to pay interest rates and fees. If you have people you can comfortably borrow from, you can try this. You should also endeavor to pay at the agreed time so that you can maintain a good relationship with the lender.
Cash advances are reliable but expensive. You know you can access this cash when you really need but it should be your last resort. This is because cash advances are expensive and they accumulate quickly. However, if you really need it, you can access it. You should make plans on paying it off once you get the loan. Also, make sure you save for such emergencies so that you do not find yourself in that kind of situation again.