Pros of taking out a cash advance
At the time of issuing your cash advance, most credit issuers will tack on a fee of 3%-5% for the withdrawal. For your $1,000 cash advance, you may end up paying $50.
Minimum monthly credit payment
While there are no requirements in terms of how long it takes you to pay back your cash advance, you will still need to make your minimum monthly credit payment each month.
Pros and cons to cash advances
As with any type of money lending, there are always advantages and disadvantages to consider. Here are the main pros and cons you should be aware of when considering taking out a cash advance:
The most significant selling point to a credit card cash advance is its speed. A cash advance can get you a lump sum of cash in a few days max. And many times, you can get that chunk of change on the spot. It’s also simple. There’s no need to go through third-party lenders or meet with a loan representative. You simply need to see a teller. And if your credit card has an associated PIN, you may be able to do the whole thing through an ATM.
Cons of taking out a cash advance
The cons of a cash advance are, of course, the fees. As https://paydayloansohio.net/cities/waverly/ we’ve mentioned, cash advances are very, very expensive. The average APR for cash advances is just above 21%, while the average credit purchase APR is only 15.7%. And unlike a credit card APR, a cash advance APR is unavoidable. Standard credit card purchases have a grace period for interest accrual; you won’t be charged interest unless you fail to pay off your balance at the end of each month. If you’re the type of person who pays off your total credit balance at the end of each month, you’ve probably never paid a single percent in your credit card APR. With cash advances, on the other hand, you start accruing interest the minute the cash advance is received. Even if you pay the entire cash advance back at the end of the month, you’ll still be liable for interest on the time between the day the cash advance was received and the end of the month.
Does a credit card cash advance impact my credit score?
The act of taking a cash advance has no impact on your credit score. It does not drop because you need a cash advance. Of course, paying your credit balance in a timely manner will result in stronger credit, and late payments will lower your credit score, and your credit card cash advance is included in this balance. However, where a cash advance can have a significant effect is with your credit utilization ratio.
Your credit utilization ratio is a measure of how much of your total available credit you utilize each month. For instance, if your credit limit is $1,000, and you have a $300 balance, your credit utilization ratio is 30%. If you have a $1,000 balance, your utilization ratio is 100%. A high utilization ratio can negatively affect your credit score. That’s because credit card issuers see high utilization as an indication of credit risk; it’s possible you’ll owe more than you can pay.
Alternatives to a credit card cash advance
According to , a credit card cash advance is better than a payday loan, but not significantly. The moral of the credit card cash advance story is that it can be used as a last resort, but you should try to exhaust all other options first. Before choosing a credit card cash advance, consider the following alternatives: