Need Cash? Here Are The Benefits and Drawbacks of Taking a Cash Advance
Have you ever considered taking a cash advance? If you’re not familiar with the term, it is a short-term cash loan that you can get from a credit card issuer. The loan will be taken against your credit card’s credit line. When you’re short on cash and need quick and easy access to money, a cash advance can seem very appealing.
However, like most types of loans, a cash advance has both benefits and drawbacks. In this article, we will share the pros and cons of moving forward with one.
Benefits of a Cash Advance Loan
If you need some immediate cash to cover an expense that you can’t pay with a credit card, then a cash advance can help you in a pinch. In general, a cash advance won’t directly affect your credit score, since credit reporting companies do not include them on credit reports.
The other benefit is that your credit standing is not a determining factor for approval. Although you only have access to the funds available on your credit card, it is not necessary for you to apply for new credit to have access to that cash.
Finally, there is no paperwork to be filled out in order to get cash. You also don’t have to put up any collateral. For most people, cash advances offer a simple and quick solution for accessing cash fast.
Drawbacks of a Cash Advance Loan
Even though a cash advance loan can help you in situations when you can’t use a credit card, the irony is that you need a credit card in order to qualify for one. Even though this type of loan won’t directly affect your credit score, it does come with high interest rates and fees that will cause your balance to balloon if you don’t quickly pay off the loan. The increased balance will also impact your credit utilization ratio, which does affect your credit score.
You can get a cash advance in a few different ways: at an ATM (if you have a pin number for your credit card), in person, or with a convenience check. The other con is that these loans have to be repaid quickly. Many times you may have only two weeks to pay back a cash advance loan. If it rolls over past that, you will be hit with substantial penalties and wind up paying even higher interest rates.
At the end of the day, you want to make sure you’re reading the fine print and doing your research before moving forward. Not only do many credit card issuers charge a fee, but they also set very high interest rates. According to the results of a 2017 survey by CreditCards.com, the average interest rate on a cash advance was 23.68%, this is about eight points higher than the standard interest rate.
Alternative Ways To Get Cash
It is wise to try and exhaust all options when it comes to taking out any type of loan. Perhaps you can borrow money from a friend or family member. Even taking out a personal loan may be a good option. At the end of the day, both of these options will likely have better terms.