Saving money is essential when it comes to managing personal finances. However, not everyone is capable of doing that for various reasons. For many, covering monthly living expenses is already hard enough. It’s even more difficult when unexpected expenses, like sudden medical bills and home repairs, come up.
Thankfully, there are several financing options to fall back on when you find yourself in a tight financial spot. A cash advance loan is one of them. But like other types of loans, it can either be beneficial or detrimental to your financial situation.
That underscores the importance of understanding how they work. To help you do that, here are six considerations you have to keep in mind before using a cash advance loan.
How Does A Cash Advance Loan work?
A cash advance is a short-term loan that allows you to get quick cash from banks and online lenders like CreditNinja.com. Although each lender’s and state law’s maximum amount of cash advance loan can vary, it usually sits around $500. There are various cash advances, but the most common type is a credit card cash advance.
A credit card cash advance is borrowing money against your credit limit. There’s no approval or paperwork required, making it possible to get the money whenever you need it. Note that cash advances are capped for most people, and you won’t be able to borrow the entire amount of your credit line. So, relying on it every time may not be a good idea.
How To Get A Cash Advance?
There are different ways to get a cash advance, depending on your credit card provider. Generally, credit card providers allow you to take a cash advance in the following ways:
- Withdrawing the cash from an ATM
- Getting the cash from your bank
- Using cash advance convenience checks
Whatever way you get a cash advance, make sure to read the fine print. Be mindful of the cash advance fees and how interest accrues.
How Much It Costs To Get A Cash Advance
Compared to regular transactions, cash advances can have a higher cost. Before you take out a cash advance, it would best to know with the following fees or costs:
Cash Advance Fee
Credit card issuers usually impose a cash advance fee. While some of them charge a flat fee per cash advance, others levy a percentage of the amount borrowed, often as much as 3% or 5%. If you have a $200 cash advance, you’ll end up paying either $6 or $10 as cash advance fee.
Cash advances often come with higher interest rates than the rate charged on purchases or balance transfers. They also carry a different interest rate and balance from your credit purchases.
ATM or Bank Fee
If you use an ATM to get your cash advance, you’re most likely to be charged with a small usage fee. It is imposed by the owner of the ATM or the bank where you access the cash advance.
What Are The Terms In Cash Advances?
Unlike credit card purchases, there’s no grace period after you take a cash advance from your credit. It means that the interest on cash advances starts accruing the moment you complete the transaction.
Since your cash advance has a different interest rate from your purchases or balance transfers, your monthly payment will likely be dispersed. However, it also depends on the amount you pay. If you only make the minimum payment, it will most likely be put on your balance with the lowest interest rate.
If that’s the case, your cash advance balance may remain high and accrue more interest for months. To avoid that, you’ll have to pay back more than the minimum.
Does A Cash Advance Affect Your Credit Score?
Like other borrowing types, a cash advance can impact your credit score in several ways. Although your credit card advance doesn’t appear as a separate item on your credit report, it can hurt your credit score if the amount you borrow pushes your credit utilization ratio above 30%.
The high interest rate in a cash advance can affect your ability to make the monthly payment on time. If you incur late or missed payments, it can significantly hurt your credit score and your ability to get new credit in the future. Banks in Australia are now offering Refinance Cashback Offers if you choose to refinance your home loan with them.
How To Handle A Cash Advance Wisely?
Taking out a cash advance from your credit card comes with certain costs. It also comes with the risk of getting into more debts. To prevent that, here are some ways to handle a cash advance wisely.
- Read the fine print and understand the terms and fees.
- Know your cash advance limit, and don’t take out more than you can afford.
- Use a credit card with zero balance for your cash advance.
- Avoid credit card purchases until you repay the cash advance.
Should You Use A Cash Advance Loan?
Using a cash advance loan may not be a good idea every time. You have to consider the terms, fees, and purpose of getting a cash advance. It is best to use it as a short-term solution to meet a financial emergency. If your financial problem keeps recurring, a cash advance loan might not be the right move.