Exploring Cash Advance Options and Alternatives

Author

Reads 458

Man In Black Suit Holding Banknotes And Credit Card
Credit: pexels.com, Man In Black Suit Holding Banknotes And Credit Card

Cash advance options can be a lifeline for those in a financial pinch, but it's essential to explore the alternatives before making a decision. A cash advance can cost up to 36% of the borrowed amount in fees.

For those who need quick access to cash, payday loans are often a popular option. However, they can have extremely high interest rates, sometimes exceeding 500% APR. This can lead to a cycle of debt that's challenging to escape.

Some employers offer employee loans or advances, which can be a more affordable option. These loans are typically interest-free and can be repaid through payroll deductions.

What Is a Cash Advance

A cash advance is a short-term loan offered by your credit card issuer, allowing you to borrow money against your card's line of credit.

You can get a cash advance in a few different ways, including at an ATM, in person at your bank, or with a convenience check.

Credit: youtube.com, How a Credit Card Cash Advance Works (and why you shouldn't do one)

To get a cash advance at an ATM, you'll need a PIN for your credit card, which may take a few business days to receive if you don't already have one.

There are often limits to the amount of cash you can withdraw from an ATM, so be sure to check with your card issuer first.

You can also request a cash advance in person at your bank, which may be a more convenient option if you're not comfortable using an ATM.

Convenience checks are another option, but be aware that you'll need to cash or deposit the check yourself.

Here are the ways you can get a cash advance:

  • At an ATM
  • In person at your bank
  • With a convenience check

Types of Cash Advance Options

Cash advance options come in various forms, some more expensive than others.

Cash advance apps like Varo, Payactiv, MoneyLion, Dave, EarnIn, and Empower offer advances of $1,000 or less.

These apps typically require repayment within a short time frame, such as 30 days or when you receive your next paycheck.

Card

Credit: youtube.com, 12 Cash Advance Loan Apps That Can Approve You Instantly Today

Credit card cash advances are a common option, but be aware that they often come with high interest rates and fees. You can withdraw cash at an ATM or use a convenience check, but the interest starts accruing immediately with no grace period.

A flat rate or percentage of the advanced amount is usually added as a fee. If you use an ATM, you might also be charged a small usage fee. Credit card companies treat cash advances as separate from purchases, with their own balances on your account statement.

Paying more than the minimum payment will help reduce your debt faster, but make sure to apply any extra payments to the highest interest balance first. This is because the cash advance balance can sit and accrue interest at its high rate for months if you only pay the minimum.

Merchant cash advances are another option, but they're typically issued to businesses in need of quick cash. They can be easier and faster to obtain than traditional business loans, and may be repaid out of the company's credit card and debit card receipts.

You might like: Debit Card vs Atm Card

App

Credit: youtube.com, Payday Loan Apps 2024: How to Choose a Cash Advance App When You're Out of Options 🔶 CREDIT S3•E398

Cash advance apps are a type of short-term loan.

They often offer advances of $1,000 or less, which must be repaid within a short time frame, such as 30 days or when you receive your next paycheck.

These apps tend to charge high interest rates, over 100% in some cases when expressed as an annual percentage rate (APR).

You may also have to pay other fees on top of the interest rates.

Cost and Fees

Cash advances can be a costly way to get cash fast, and it's essential to understand the terms and fees involved. A cash advance APR is typically higher than the regular purchase APR, with some cards charging as high as 29.74% variable APR.

The Citi Double Cash Card is a good example of this, with a 29.74% variable APR for cash advances, compared to 18.49% - 28.49% for purchases and balance transfers. This means you'll pay more interest on your cash advance.

If this caught your attention, see: Cash Advance Apr 29.99 Meaning

Credit: youtube.com, Cheapest Cash Advance Apps: Borrow $100 for as Low as $6!

A cash advance fee is another cost to consider, typically ranging from 3% to 5% of the total amount of each cash advance. For instance, a $250 cash advance with a 5% fee will cost you $12.50.

You'll also need to factor in any ATM or bank fees for taking out a cash advance. These fees can add up quickly.

Here's a breakdown of the costs associated with a cash advance:

Cash advances don't benefit from a grace period, so you'll start paying interest from the date you withdraw the cash. This is different from regular purchases, which often have a grace period of at least 21 days.

Alternatives

If you're considering a cash advance, it's worth exploring alternative options that can help you avoid debt.

Borrowing from family or friends can be a cost-effective way to get the cash you need, as long as you create a repayment plan to keep your relationship on good terms.

Credit: youtube.com, 8 Earnin Cash Advance App Alternatives For 2022

Personal loans often offer better terms than cash advances, with fixed interest rates that are much lower than what credit card issuers charge.

Some lenders, including banks and credit unions, offer payday alternative loans (PALs) that are small, short-term loans with more affordable rates.

Employers may also offer payday loans or advances on paychecks as a service to their employees, often with no fees or interest charged.

To avoid the risks associated with payday loans, consider safer loan options like personal loans with a minimum amount of under $1,000 and 24-hour funding.

Here are some safe alternatives to payday loans:

  • Best for no credit: Oportun
  • Best for military members: Navy Federal Credit Union
  • Best for longer repayment terms: First Tech Federal Credit Union
  • Best for good credit: PenFed Personal Loans

You can also consider cash or paycheck advance apps like Instacash, which allows you to get a cash advance of up to $500 with no interest or monthly fees.

A payment plan with your creditors can also help you get out of a money crunch without borrowing more.

Credit: youtube.com, The 6 BEST Payday Loan Alternatives

Borrowing from family or friends can be a good option, but be sure to consider the potential implications to your relationship if you fail to pay back the borrowed money.

Cash advance from a credit card is another option, but keep in mind that it comes with a higher interest rate than the card's purchase APR, and interest begins to accrue immediately.

Impact on Credit Score

Taking out a cash advance can affect your credit score in several ways. If you take the advance from a credit card, it will raise your outstanding balance, which will in turn raise your credit utilization ratio.

This ratio is a measure that credit scoring models take into account in calculating your score. Generally speaking, the scoring models and lenders favor a credit utilization ratio of 30% or less.

If you owe $500 on a card with a $1,500 limit, for example, your credit utilization ratio is 30%. 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%.

In some cases, a cash advance could hurt your credit score if the interest builds up to an extent that you are unable to repay it.

Ginger Wolf

Copy Editor

Ginger Wolf is a meticulous and detail-oriented copy editor with a passion for refining written content. With a keen eye for grammar and syntax, Ginger has honed her skills in ensuring that articles are polished and error-free. Her expertise spans a range of topics, including personal finance and budgeting.

Love What You Read? Stay Updated!

Join our community for insights, tips, and more.