Posted by Advanced Accounting & Tax Planning

Cash Advances - Is This The Best Option?

Cash Advances - Is This The Best Option?

If you need money to pay rent or pay a friend, you may be tempted to find it as quick and efficient as possible. And while a cash advance seems fast and easy, it can also be expensive. So you have to think carefully if you need to spend money and if a cash advance is the best option for you.

How do cash advances work?

Advances are loans from credit card issuers, which are readily available in two ways: at an ATM or by cashing a paycheck. But this comfort comes with high rates, and compound interest rates that go double-digit is profitable.

Although some offerings have a teaser or low introductory rates, they may appeal to consumers and lead to a false sense of security.

Why use a cash advance?

Although credit card cash advances have many costs, it is possible to consider one in certain situations.

If you happen to be traveling to a foreign country and have not communicated the trip to your bank, you can be stopped without access to the local currency. If you suspect fraudulent activity, your bank may suspend your current account or savings account, leaving you disconnected from your money. You can usually clarify this with a simple phone call. Still, you may not have access to mobile service or international calls or have connection problems with a bank representative due to jet lag. As long as your credit card is not blocked, you can use it to get a cash advance.

Other cases where you may need the money that you do not have at the bank include hiring an installer, gardener, housekeeper, nanny, or a small business that does not accept credit cards. But remember that interest can increase, so borrow only what you can afford.

You can also opt for an advance in other only in cash situations, for example, if you have moderate rent, and your landlord does not accept credit cards.

Four questions to ask before obtaining a cash advance

Experts say four questions must be requested before getting a cash advance:

  • Can I return the money in a month? This is the only way to minimize high-interest rates.
  • Is there another way to manage this financial situation? Consider all options, including a loan from a family member. The only worst place is a payday loan company.
  • Do I need what I am going to buy? The purchase of pulses is usually more than anything. Do you need a car battery on a winter day, and the retailer does not accept a credit card and has forgotten your debit card? Go ahead, A pair of Jimmy Choo shoes? New iPhone? Rethink
  • Need help? The customer with a typical cash advance is a non-cash customer who needs a financial change. Think about changing your lifestyle.


Advantages of a cash advance

Life goes on, and sometimes we need extra money to cover a surprise or deficit at the end of the month. Cash advances can be a quick way to get cash to cover unpaid credit card expenses, such as rent.

The problem of cash loans

Getting a cash loan is as straightforward as going to a bank or an ATM, presenting your card and withdrawing money. This sounds ideal, but cash advances usually have higher rates or interest rates. Here is a concise breakdown of the differences between a cash advance and a regular purchase:

  • Cash Advance Fee: As its name suggests, it is a one-time fee when you receive the advance, which typically ranges from 3% to 5% of the amount. For example, if you receive an advance of $200, the commission between $6 and $10 will be added to your account balance.
  • Higher interest rate: Many cards apply a higher annual percentage for cash advances than standard purchases.
  • No grace period: Your credit card usually offers a minimum 20-day grace period to pay for the purchase before receiving interest. However, cash advances start generating interest from the first day.
  • Lower Credit Limit: Some credit cards have separate credit limits in advance, lower than the general credit limit.

Do cash advances affect your credit score?

Not for the action of taking one, because it would be a strong attraction for your credit. However, a cash advance can put you in different situations that would reduce your credit score.

  • The cash advance is added to the balance, which changes the use of the credit. The use of credit is a score that analyzes the value of the total credit you use. Ideally, keep this number below 30%. A cash advance can quickly increase the use of this number and damage your credit score.
  • Cash advances start generating interest from the day you receive them. This creates a more substantial debt with which you started, which can be even more difficult for many people to repay. Generating more debt and potentially losing future payments will damage your credit score.

Alternatives in advance in cash

You may need secure and fast access to money for many reasons. Fortunately, there are several alternatives to paying high fees and interest associated with cash advances. If you don't need the money immediately, you can try to get a personal loan.

You can also borrow money from friends, colleagues, and family, take casual jobs to earn extra money, or even ask the lender if you will be given spare time to pay back (it may be helpful to work with a credit counselor). If the purchase you want to make is not essential, you can wait until you have earned it.


Sometimes you may feel that the cash advance on your credit card is the only option, but there are probably other ways to access the money. Before you bring your credit card to the ATM, you know exactly how much it will cost in advance if you have another option and if that purchase or payment can wait. You can make a versed decision if a cash advance is the right choice for you.

Advanced Accounting & Tax Planning
Contact This Member