Are Cash Advances a Good Idea?

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Are Cash Advances a good Idea?

Rarely. They can provide quick cash, however charges and interest are high and will cost you dearly. Less expensive alternatives exist.

by Anisha Sekar Anisha is an ex-personal finance writer for NerdWallet. She has worked with Silicon Valley startups as well as the public sector and has contributed to publications such as Technorati along with Women Grow Business. She completed her studies in applied mathematics and economics at Brown University.

Sept 7, 2022

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Every once in a while you’ll have to pay cash and only have credit cards. Perhaps you’re in an establishment that is cash-only or your taxi driver won’t take credit cards. Whatever the reason, cash advances cash advance may seem like a good choice. Cash advances are short-term loan to your credit card account. It’s a straightforward transaction that can have very expensive consequences. In the majority of cases this is a bad idea.

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The problem is with cash advances.

The process of getting a cash advance can be just as simple as visiting a bank teller or an ATM, presenting your card and walking away with cash. It sounds ideal however, cash advances are likely to be accompanied by fees or higher interest charges. This article will provide a detailed explanation of the main differences between cash advances and a normal purchase:

Cash advance fee is, as the name implies it’s one-time charge that you pay when you get your cash advance, typically ranging between 3% and 5% of the amount. For instance, if you get an advance of $200, the fee of between $6 and $10 would be tacked on to the balance of your account.

Higher interest rate: Many cards have a higher APR for cash advances than regular purchases.

No grace period Credit card companies typically offers you at minimum 20 days to repay the purchase prior to being assessed interest. Cash advances, though they begin to earn interest from day one.

Credit limit lower: Certain credit cards offer a maximum credit limit for cash advances that is smaller than the total credit limit.

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What are alternatives to a cash advance?

There are plenty of other . Here are some which might be more appropriate to you:

Offers from your credit card’s provider: In recent times, you can avail some offers, like the possibility to convert your credit into one-time installment loan without the need for a new loan application. There’s still a charge for interest when you use this option, but you’ll possibly be able to get a better rate.

A bank overdraft can be a problem for your account with a checking account can cost anywhere from $25 to $35 if the balance on your account falls below zero, but you’ve given permission to the bank to allow the withdrawal regardless. You are able to opt-out of this, of course, but it is an option for short-term funds. Be cautious, however -Some banks will are also charging extended overdraft charges.

A withdrawal that occurs early from a certificate of deposit (CD): This is another option for those who need money immediately. But, CDs are designed for long-term deposits, so you could end up having your CD canceled.

The option is usually more involved than the other optionsbecause it requires you to go to an institution and requesting the loan. Rates of interest on personal loans are less than those on most credit cards however, the rates for short-term loans of payday lending companies are often much more expensive.

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When is a cash advance deemed to be a good idea?

Cash advances almost never are a good idea.

In comparison to the options mentioned above, you could very be pleasantly consider a cash-back from your credit card is the least expensive option once your crunch the numbers (though you may want to consider a bank account with ). However, it’s probably not going to be a free option. If you’re forced to apply for a cash loan it’s only wise to do so when you know you’ll have enough money to pay it back in the shortest amount of time. Otherwise, the interest piles up with each passing day.

The balance could tip favor of a cash advance if you’re using a card that does not charge a cash advance fee. In that scenario, you don’t need to be concerned about interest payments.

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Even better: Avoid needing an advance

Build up an emergency fund to pay for any unexpected costs. Consider setting up automatic deductions to transfer funds from your checking account to an “rainy day” account or explore some methods to earn additional income on the side.

If you’re considering cash advances solely because you’ve forgotten to carry cash,, you may want to check out debit cards that have . So, you’ll be able to go to the ATM closest to you without having to pay an out-of-network fee.

About the author: Anisha Sekar is a former personal finance writer at NerdWallet. She has worked for Silicon Valley startups and in the public sector. She was a mathematician who studied applied economics at Brown University.

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