How to Get a Credit Card Cash Advance

How to Get a Credit Card Cash Advance

Credit cards may come with the option to withdraw cash from them, also known as a cash advance. In brief, these are short terms loans that allow you to borrow money against whatever available credit you may have on your card. Cash advances may be convenient for those who are dealing with a business that does not accept credit or debit cards, or if you find yourself in a financial emergency and do not have sufficient funds in your bank account. Although taking a credit card cash advance may appear to be an advantageous fix to the financial bind you might find yourself in, it is important to be aware of the steep transaction costs that apply when you withdraw money from a credit card.

Getting a credit card cash advance rarely makes sense outside of urgent situations. Unless you are dealing with a business that only takes cash or you are in the midst of a financial crisis where it is the only way to obtain cash, there is almost no good reason to get a cash advance unless you are certain that you will have access to the money needed to pay it off. 

Before withdrawing cash from a credit card, it is important to first check the agreement that you have signed with your credit card issuer to confirm that you are allowed to take out a cash advance. Also, make sure to verify your card’s advance limit. Once determining if and how much money you may withdraw from your credit card account you now need to choose the method that you will use to get money from a CC. Three common options are:

  1. Withdraw money from an ATM - It is necessary to first create a cash advance PIN when choosing this option. This can usually be done online. If not, contact your bank’s customer service helpline. Once your PIN has been created, you may now withdraw cash from any eligible ATM. Once completed, the transaction will be charged as a credit card cash advance.
  2. Visit your local branch - If you do not wish to create a PIN, certain credit card issuers may permit you to visit a local branch where you will hand over your credit card and ID photo before receiving your cash advance.
  3. Request a credit card convenience check - Convenience checks may be mailed by your credit card issuer and are the same as using a check to make a payment via a credit card. The only difference is that the transaction is processed as a cash advance.

Pros

  1. Convenient and quick - Taking out a credit card cash advance allows you to quickly access the cash that you need.

Cons

  1. High fees and interest rates - Fees often fall between 2 and 5 percent of the full amount of the cash advance and are compounded by high interest rates
  2. No grace period - You will begin to accumulate interest as soon as you receive cash, therefore you must be able to pay off the loan as soon as possible.
  3. Credit score impact - A cash advance may raise your credit utilization score, which may harm your credit score

  1. Get a loan from friends or family - Although the option many would prefer to avoid, it is often more cost-effective than taking out a credit card cash advance. To keep things professional, state in writing the terms of the agreement to ensure that both parties are clear on what to expect when it comes to the loan and how much will be repaid.
  2. 401(k) loan - It is possible to borrow funds from your 401(k) loan. The interest rates and fees are not fixed and vary according to employer and plan administrators. The loan limit is a maximum of 50% of the available funds, and it needs to be repaid in five years or less. This loan requires no credit checks and the payments may be automatically deducted from your paycheck. It is important to note that if you choose to borrow funds from your 401(k), you will not be accumulating any investment returns.
  3. Bank personal loan - This is an attractive option if you have good credit. It may also be more affordable than a credit card cash advance and will be faster to pay off, resulting in less interest being accrued.
  4. Collateral loan - This is a loan that has been secured by tangible assets. An example is that home equity loans and lines of credit may be secured using your residence’s value. Some banks may allow you to make loans against the value of a certificate of deposit (CD) or a trust.
  5. Salary advance - This is an option offered by many employers. Fees may be as low as $8, however, this loan is known to have high interest rates, ranging from 10% to 165%. Like the 401(k) loan, payments may be automatically deducted from your account.

Remain vigilant of the different fees attached to cash advances:

  1. Cash advance fee - Your credit card issuer will usually have a cash advance fee, which is usually 3% or 5% of the full amount of the cash advance that you have requested.
  2. Cash advance APR - Cash advances have a different, higher interest rate than your regular credit car balance.
  3. Bank or ATM fee - There is a fee if you take out a cash advance by visiting the bank branch or using an ATM 
  4. Distinct credit limit - Cash advances usually have a separate credit limit that is a fraction of your total credit limit.
  5. No grace period - Interest will be incurred from the date you take out a cash advance, unlike the grace period that you have when making a credit card purchase. Credit card companies often have a 21 day grace period during which you will not incur interest if the full balance is settled by the date that it is due.

A credit card cash advance is rarely a good idea, unless you are in a financial bind and need quick access to cash. Even then it is important to ensure that you will have access to sufficient funds to pay off the loan as quickly as possible to avoid accruing unnecessary interest. There are other, cheaper, alternatives to consider and it would be worthwhile looking into them before making any rash financial decisions with long-lasting consequences. If you have no choice but to take out a credit card cash advance, or believe that it is the best option for you, watch out for the fees that come with this option.

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