When you need cash in a pinch and you don’t have emergency savings to tap, taking an advance from one of your credit cards can put the money in your wallet quickly. While a credit card cash advance may be a convenient way to cover temporary financial gaps, there are a few things to consider before pulling the trigger.
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Credit Card Cash Advance: Explained
To put it simply, a credit card cash advance is a different way to borrow against your credit limit. Your card may have one limit for purchases and a different limit for cash advances. When you take a cash advance, the amount is deducted from your available cash advance limit.
To get the cash, you can use your card to make a withdrawal against your credit line at an ATM or many bank branches. If your card issuer has mailed you a cash advance convenience check, you can make one of these out to yourself and cash it at the bank as well.
What Are the Pros and Cons?
Credit card cash advances come with certain advantages and disadvantages. Putting the two in perspective can help you to decide whether taking a cash advance makes sense.
Cash Advance Benefits
In terms of the positives, perhaps the number one reason to consider a cash advance is the convenience factor. It’s possible to get the money that you need the same day that you need it. While online lenders have the ability to deposit the proceeds of a personal loan into your bank account within one to two business days, a cash advance still trumps them for speed.
Another advantage is that, unlike a personal loan, a cash advance doesn’t require you to go through an application or underwriting process. There’s no lender scrutinizing your credit score or other financial details, the way there would be for a loan. You don’t need any collateral either. You simply need to have a sufficient amount of available credit to take an advance.
Downsides of a Credit Card Cash Advance
The primary argument against taking a cash advance has to do with the cost. Credit card companies typically charge a fee for an advance, as well as a higher annual percentage rate (APR).
Unlike credit card purchases, which normally enjoy a grace period before interest begins accruing, the interest clock on a cash advance starts ticking right away. That puts more pressure on the borrower to repay the advance as quickly as possible to minimize the interest charges.
Cash Advance Alternatives
If you’re on the fence about whether to use a credit card cash advance, it helps to consider what other options may be available. The following methods vary in terms of convenience and cost, but some may be more appealing than a credit card cash advance if you’re concerned about paying high interest or hefty fees.
- Personal loan — Banks, credit unions and online lenders are potential sources for online loans. If you have a good personal credit score, you may be able to get a better APR than you would for a cash advance.
- Borrowing from friends/family — Mixing personal relationships and money can be tricky, but it’s something to think about if you’re running into a roadblock with other borrowing options. Drawing up a written agreement can help both sides to be clear about the loan terms.
- Home equity loan or line of credit — If you own a home and you have some equity built up, you could choose to borrow against it using a home equity loan or HELOC. You may have more flexibility where the APR and repayment terms are concerned, but just remember that your home serves as the collateral for the loan.
- Tapping retirement accounts — Taking a loan from your 401(k) or withdrawing funds from an IRA is a fourth option, but one that should be weighed carefully. A 401(k) loan becomes a taxable distribution if you leave your job before the loan has been repaid. Taking money from an IRA before age 59-1/2 also has certain tax implications that you need to be aware of.
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Credit card cash advances can be an expensive way to borrow and it’s a good idea to look at all the angles before taking one. You may find that there’s a better way to get the cash you need. If you do decide to opt for a cash advance, be sure to read the fine print in full so you know exactly what’s involved.