Sometimes you have to face unexpected financial setbacks. While dipping into an emergency fund is ideal, not everyone has that option. If you have a credit card, there are several ways to transfer cash from your credit card line of credit to your bank account. The most common way to do this is called Cash Advance,
In this article we’ll cover everything you need to know about cash advances, including:
- What is a Cash Advance?
- how to get cash advance
- What to Consider Before Getting a Cash Advance
- Is a Cash Advance a Good Idea?
- Do Cash Advances Affect Your Credit Score?
What is a Cash Advance?
A cash advance is a loan provided by your credit card issuer. When you take out a cash advance, you are borrowing money against your card’s line of credit. You will have to repay this loan and the amount you transfer cannot exceed the current balance available on your credit card. The transferred amount is then added to your credit card balance.
Unlike credit card purchases, interest on withdrawals begins accruing as soon as you transfer it to your bank account. There is no grace period, as is the case with a typical credit card purchase. So while cash advances can be convenient, they can also be more expensive.
how to get cash advance
There are several ways to get a credit card cash advance. In each case, the amount transferred or withdrawn by you will appear on your credit card statement and will start accruing interest.
from an ATM
Before visiting an ATM to get your cash advance, you will need to obtain a PIN, similar to a debit card PIN, from your credit card issuer. Once you have that, you can insert your credit card into the ATM. Select the Cash Advance option and enter the amount you wish to withdraw. You must accept any associated fees, then complete the transaction. Cash will be given.
at a bank branch
Bring your credit card and a photo ID to the bank teller, and tell them the amount you want to withdraw. There will be a fee associated with this transaction, usually between 3% and 5% of the amount withdrawn.
with cash advance
Check You can request cash from your credit card issuer in the form of a check that is mailed to you. When using it to make a purchase, you check out and sign for the merchant. If you want to cash the check, make it out to yourself and cash it anywhere you normally would with a personal check. This amount will be deducted from the credit line of your credit card.
What to Consider Before Getting a Cash Advance
Before you commit to taking a cash advance, there are several things you’ll want to consider:
- APR over regular purchase: The APR on a cash advance can be much higher than on everyday credit card purchases.
- No Grace Period: The interest clock starts ticking the day you take out a cash advance. You won’t have the grace period that you get with credit card purchases – which is an interest-free period of about 21 days – from the day your monthly statement is generated to the day your payment is due.
- High Fee: When you sign up for a card you will find the associated fees listed in the terms and conditions. Most of the time, these fees are equal to around 5% of the withdrawal amount.
Is a Cash Advance a Good Idea?
Cash advances are a convenient, but expensive way to borrow money. They should be used only occasionally. When possible, try to use other sources to meet your financial obligations. Extra fees and higher-than-usual interest rates make cash advances an option of last resort, suitable for emergencies but nothing else. You’ll also lose the opportunity to earn rewards points.
Do Cash Advances Affect Your Credit Score?
Cash advances do not directly affect your credit score and they will not appear on your credit report. They do however affect your credit utilization ratio, and this ratio is an important factor in determining your credit score.
If your credit utilization ratio goes above 30% because of a cash advance transaction, it can have a negative impact on your credit score. Plan for this by paying off your balance by the end of the billing cycle, which will reduce the utility back.
Cash advances provide an opportunity to get cash quickly, but you must remember that it is a loan with serious financial implications. Before you decide to go this route, it’s important to consider its pros and cons. Also, be sure to fully understand the terms and conditions you are signing up for.