The only time to consider a cash advance
Cash advances are short-term loans with seriously high interest rates, like near 30% APR. That’s more than what your credit card charges on everyday purchases (when you don’t pay your bill each month). It gets worse: The interest on cash advances starts accruing immediately, and you have to tack on fees, which can either be flat or anywhere from 3% to 5% of the cash advance amount.
We were curious: Is there ever a situation that would call for resorting to a cash advance? Yes, in emergencies, CFP Otto Rivera, an investment manager at White Lighthouse Investment Management, tells CNBC Select. This would be an instance where you need cash immediately and have no other options, like, he points out, for an emergency medical expense or if you’re traveling abroad and need access to cash.
“A cash advance may play a part, just to fix the situation and then move on,” he says.
Rivera adds: If you have to, cash advances should only cover smaller amounts and shouldn’t be done more than once or twice.
When you have a true financial emergency and a cash advance is your last resort.
Better alternatives to a cash advance
Before taking out an advance, consider first a personal loan that has lower interest rates and better repayment terms, or even ask to borrow money from family or friends (with a solid repayment plan in place, of course).
“Financial products are tools, and there are better tools than others for short-term funding or short-term liquidity,” Rivera says when comparing cash advances.
Personal loan
Upstart approves borrowers with credit scores as low as 300, and they can apply for loans as small as $1,000, up to $50,000. There are no penalties for paying off your balance early. Avant offers funding as early as the next business day after approval and, if you’re facing financial hardship, Avant may temporarily lower your interest rate for anywhere from three months to a year.
- Open to borrowers with fair credit (minimum 300 score)
- Will accept applicants who have insufficient credit history and don’t have a credit score
- No early payoff fees
- 99% of personal loan funds are sent the next business day after completing required paperwork before 5 p.m. Monday through Friday
- High late fees
- Origination fee of 0% to 10% of the target amount (automatically withheld from the loan before it’s delivered to you)
- $10 fee to request paper copies of loan agreement (no fee for eSigned virtual copies)
- Must have a Social Security number
Avant Personal Loans
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Annual Percentage Rate (APR)
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Loan purpose
Debt consolidation, major expenses, emergency costs, home improvements
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Loan amounts
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Terms
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Credit needed
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Origination fee
Administration fee up to 9.99%
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Early payoff penalty
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Late fee
Up to $25 per late payment after 10-day grace period
Click here to see if you prequalify for a personal loan offer. Terms apply.
Pros
- Lends to applicants with scores lower credit scores
- No early payoff fees
- Can pre-qualify with a soft credit check (no hard inquiry)
- Quick funding (often by the next day)
- Late payment grace period of 10 days
Cons
- Origination fee
- Potentially high interest (caps at 35.99% APR)
- No autopay APR discount
- No direct payments to creditors (for debt consolidation)
- No co-signers
Pros and cons of a cash advance
Here are the benefits and drawbacks to consider when taking out a cash advance:
Pros
- Quick access to cash: You can get money immediately from ATMs, banks or via special checks.
- Works when cards aren’t accepted: Useful for purchases that only accept cash, like lottery tickets or some small businesses.
- Emergency use: Could work for emergency expenses, like car repairs or medical bills, when in a financial bind.
Cons
- No grace period: Cash advance interest starts accruing immediately, often at a higher rate than the APR on your regular credit card purchases.
- Fees apply: Cash advances come with fees, typically ranging from 3% to 5% of the cash advance amount withdrawn.
- Lower limit: Your cash advance limit is smaller than your total credit limit, so you can’t borrow as much as your credit allows.
- Risk to credit: Frequent or unpaid advances can hurt your credit score and make debt harder to manage.
FAQs
How does a cash advance work?
A cash advance lets you borrow money from your credit card or lender, usually with high fees and interest that starts accruing immediately.
Do cash advances hurt your credit?
Taking a cash advance doesn’t directly lower your credit score but high balances and high-interest debt can make it harder to manage credit, which may negatively affect your score.
Is a cash advance a good idea?
Generally, no. Cash advances are an expensive short-term solution best reserved for true emergencies when no other options are available.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
