How Cash Advance Loans Work
Credit cards have revolutionized the way we shop, pay our bills, and the way we are viewed by financial institutions. Aside from purchasing goods on credit, you can use credit cards to get a cash advance. A lot of people are unaware of this type of loan that can give them breathing room when they are in need of quick cash. If you are one of those people, it is time to find out what is a cash advance and how it works.
What is a Cash Advance?
A credit card cash advance is an advance provided to you by credit card companies. A cash advance like this is a short-term loan that you can get at an ATM or a bank that you will have to pay back. when you take a credit card cash advance, you will need to pay back the money, unlike with a cash withdrawal. So, you are essentially "buying" money instead of items, which is very convenient if you need quick cash.
How Does a Cash Advance Work?
There are many service providers that accept credit cards for their goods and services, but there are also service providers that operate cash business only. When dealing with such service providers, you will need to have cash with you. If you are in pinch for cash, you can use a credit card cash advance to get money to pay for the services/goods you need. So, for example, if you want to purchase things at farmers markets, from street vendors, or just to buy a cup of coffee, you can withdraw money with a cash advance.
A cash advance can also be very helpful if you do not have enough money in your checking account and you need cash. The cash you borrow is determined by your credit card limit, so you will have to pay it back with interest. To get the cash, you will need to go to an ATM and take an advance with your pin number. You can also get a credit card cash advance by going to the convenience check your credit card issuer sent you. A third option for getting a cash advance is by going to your local bank.
To pay off the loan, you will need to make minimum payments, and you can pay the cash over a period of time, meaning you can pay it back in an installment plan.
How Much Money Can You Withdraw with a Cash Advance?
Aside from the credit card limit you are assigned for making purchases, you are also assigned with a cash advance credit card limit. So, the amount of money that you can withdraw is as high as your cash advance limit.
How Much Does a Cash Advance Cost?
Like other loans, when you get a cash advance, you will need to pay interest fees when you pay back the loan. The interest rates for cash advances are usually higher than the interest rates for regular purchases, so take it into account when you consider taking a cash advance.
There are two common types of cash interests – one is flat rate that stays the same for every amount, and the second one is a percentage of the amount you borrowed. The credit card issuers will usually charge the higher amount out of the two; for example, your credit provider can charge you 5% of the amount you borrowed or 15$, whichever is higher.
Unlike other loans, cash advances do not come with a grace period, so you will begin to be charged with interest rates as soon as the transactions occur. Even if you pay your balance in full, you will be charged for interest rates. So, no matter how quickly you pay back the credit card cash advance, you will be charged with a finance charge. However, you can lower reduce the interest you pay on the advance if you pay it off quickly (even before your credit card billing statement comes).
Aside from interest rates, you will also be charged with an ATM fee if you use an ATM to take the cash advance.
How to Pay Off a Cash Advance Balance?
As mentioned before, you can pay off your cash balance in installments, or in advance. The cash advance balance is different and separate from the balance of your purchase, so you need to know how to pay it. If you choose to make minimum payments, the payment will be applied to the balance with the lowest interest rate.
However, if you choose to make payments over the minimum amount, they will be applied to the balance with the highest interest rate, which in most cases is your cash advance balance. In either case, your credit card issuer is the one that decides how you will pay your cash advance balance. You want to reduce the cash advance as soon as possible if you have multiple balances and you pay more than the minimum.
What about Non-Cash Cash Advancements?
Let's say your credit card is set up with overdraft protection; if you exceed it, the overdraft amount will be considered as a cash advance. So, there are some transactions that are treated as cash advances even you haven’t withdrawn money. Aside from overdraft, money orders, wire transfers, and cryptocurrency purchases are referred to as cash advances. To find out about these cash advances and other policies relating to your credit card, you need to view your credit card agreement and view which transactions are referred to as cash advances.
A cash credit advance can be very helpful when you are in need of cash. To make sure you will not have to pay back more than you can afford in interest rates, find out everything you can about your credit carrier's policies. It will only take up a few minutes of your time but will save you a lot of money.