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As much as we’d love to be financially prepared for unexpected circumstances, the truth is that it doesn’t always happen. Maybe you have a small emergency fund, but you depleted that plus what’s left in your checking account. Now the rent and utilities are due in the same week and you need to pay your babysitter for her help last week.

In this case, it can be really tempting to get cash the fastest way you can, like with a cash advance. Different types include a credit card cash advance or a short-term cash loan (better known as a payday loan).

While a cash advance can be a quick and easy way to access cash, it can also be expensive; you could be paying a cash advance and ATM fee (if you’re using your credit card) for the privilege, plus a higher interest rate than what you’d find for other types of loans (including credit card purchases).

Before getting a cash advance, it’s important you understand how they work so you can understand how much you could be paying for the privilege. There are other options to access cash fast, many of which could be a better choice.

How Do Different Types Of Cash Advances Work?

A cash advance is defined as a way to buy cash using a credit card at a bank or ATM. Cash advance loans are provided by many credit card issuers, are available up to a variable limit and must be paid back like any other credit card purchase. Unlike other credit card purchases, cash advances are subject to high fees. 

This means you can use your credit card to withdraw cash from the ATM in order to get a short-term loan. In other words, instead of putting purchases on a credit card, you’re making a purchase with cash by using your credit limit on your card. However, the limit could be capped, so check with your issuer first.

How it works is that you set up a PIN number with your credit card issuer and then use your card like you’d use your debit card to get cash advances from an ATM. Your limit is typically defined by the available balance on your credit card. If you don’t have a PIN, you may be able to take your credit card to a bank that offers advances through a payment network (such as Visa or Mastercard) after showing ID.

Another type of cash advance is a payday loan. Unfortunately, these types of cash advance loans aren’t necessarily as clear-cut as cash advance loans are in terms of availability and terms. Typically, it’s a short-term high-interest loans for a small amount. Depending on state laws, you can either get these cash advance loans online or through a storefront.  

Once approved, your loan process can either be handed over in cash or with a check, deposited into your bank account or loaded onto a prepaid debit card.

You usually repay this type of loan in one payment when your next paycheck comes around or when you receive another income source (like Social Security). Once you take out the loan, the due date should be indicated in your agreement. Some lenders will debit directly from your bank account and even offer to do so in installments over a specified period of time instead of with a lump sum.

Although you can take out a cash advance from a credit card whenever you want, you do need an initial credit check to be approved for the card in the first place. For those who aren’t in the position to get a credit card, a payday loan can seem like an attractive option because these types of cash advance services don’t require a credit check.

As previously mentioned, cash advances come at a price.

Cash Advances Are Expensive

No matter which type of cash advance you choose, this method of getting a short-term loan can get expensive, fast.

To help you make an informed decision, here’s a breakdown of fees you could be paying if you were to do a credit card cash advance:

  • Cash advance fee: Your credit card issuer will charge a fee for you to use their cash advance services. It could either be a flat fee or a percentage based on how much you withdraw. Sometimes it could be both; you’ll be charged for whatever amount ends up greater.
  • Cash advance APR (aka interest): The cash advance APR tends to be higher than a purchase APR for a credit card. There’s also no grace period like with purchases you made on your credit card, meaning you’ll be paying interest as soon as you take the cash out.
  • ATM fee: You’ll be paying fees to the bank or to the owner of the ATM where you got your cash advance.

For payday loans, fees can get more complicated depending on how you get the cash and how you’ll pay it back:

  • Loan fee: This is typically a percentage based on every $100 you borrow. So if you borrow $400 and the fee is $15 per $100, then you’ll need to pay $60.
  • Rollover fee: If your payday lender offers rollovers on your loan when it’s due, you can get the due date extended for a fee and then you’ll be charged an additional fee after you pay off the loan.
  • Late fee: If you don’t pay back your loan on time, you may be charged a late fee. You may also need to pay a fee if you pay with a check and it bounced, known as a nonsufficient funds (NSF) or returned check fee.
  • Prepaid debit fee: If you get a payday lender to load loan funds onto a prepaid debit card, you could incur a fee. The same goes if you check your balance whenever you use the card. There could also be a recurring monthly fee to keep the card open.

As you can see, the fees to borrow money from a cash advance loan can really add up.

For example, let’s say you decide to take out a $400 cash advance from your Visa card. If you pay it back in 3 weeks, you’ll end up paying $26.43 in fees: 

  • Cash advance fee: 5% of the total amount borrowed = $20
  • Cash advance APR: 27.99% for 21 days = $6.43

Don’t forget that there may be ATM fees which can increase the total amount. And the longer it takes to pay it back, the more you’ll pay in interest. So if it takes you 30 days to pay it back, you’ll pay $29.18 instead of $26.43.

All of the above assumes you don’t have other loans to pay. If you do, then having these added fees can make it that much harder to pay off your loan in time.

Of course, only you know what your specific situation is, but getting a cash advance isn’t the best choice. With these high fees, you could find yourself falling behind on your financial responsibilities and living paycheck to paycheck. This basically means you start borrowing money, pay it back, realize you’re at square one and then you need to borrow money again. 

Before deciding to borrow money, ask yourself if there are other alternatives, especially ones with lower fees.

Alternatives To A Cash Advance

If you need fast access to money, there are alternatives that don’t come with high fees or absorbent interest rates but instead come with cash advances.

Here are a few options:

Short-Term Cash Advance Alternatives

  • Borrow from friends and family: If you have a good relationship, you can try approaching a friend or family member. Be sure to work out how you plan on paying them back.
  • Earn cash at a side job: There are tons of odd jobs you can do around your neighborhood where people will pay you in cash. For example, maybe someone wants their yard mowed or someone else needs a dog sitter while they’re on vacation. These types of tasks can get cash in your hands relatively quickly.
  • Free up cash fast: Go through any recent purchases and see if you can refund them to free up some cash. For example, if you recently purchased a few items of clothing and their tags are still on, take the receipt back to the store to get the money you need.

Long-Term Cash Advance Alternatives

  • Take out a personal loan: If you must take out a loan to cover expenses and don’t need it immediately, consider taking out a personal loan. This typically comes with lower interest rates and fees, especially if you look for online lenders. Of course, you’ll want to find a way to manage your debt so you don’t fall behind on payments.
  • Negotiate lower fees with creditors: If you can lower your interest rate on your other loans, you could pay less per month and free up cash for other uses as a result.
  • Seek the help of a finance professional: Getting professional help can be beneficial so you can break the paycheck-to-paycheck cycle and not rely on products like cash advance loans to get quick access to cash. A finance professional can help you with things like cutting back on expenses, learning how to use a budget and saving up for an emergency fund so you can tap into that account when an unplanned expense occurs.

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