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A cash advance may seem like a quick and easy way to get cash if you’re in a bind, but it can cost you a great deal of money in the long run due to numerous fees and high interest charges. There are plenty of alternative options that can provide you with cash, such as personal loans or simply asking a friend or family member for money. But, if you’re still considering a cash advance, this post explains how you can take out one, the terms and fees associated and better options for getting cash fast.
What is a cash advance?
A cash advance is when you borrow money against your line of credit on a credit card. You can also take out a cash advance with a personal loan, but for the context of this post we’re referring to cash advances from credit cards. Typically cash advances are used for short-term cash needs, since they can be quite costly for long-term borrowing. Generally, there are three options for taking out a cash advance:
- At an ATM with a cash advance PIN
- In person at a bank
- With a “convenience” check where you can write a check to yourself and then cash
When you take out a cash advance, you’re often hit with various service fees, and interest starts accruing right away. These fees can add up fast if you don’t pay your balance quickly. We discuss the fees you may incur in the next section.
Terms and fees associated with a cash advance
Compared with purchases, a cash advance, on average, will cost you more. That’s due to an increased number of fees and interest that kicks in right away. As a result, before you proceed with a cash advance, check out the fees you may be charged and the terms.
- APR: Cash advances carry a separate — and typically higher — APR from your regular purchase APR, as much as 10% higher or even double.
- Cash advance fee: This fee is often a percentage of the total amount of each cash advance you request. Typically 3% or 5%, cash advance fees can add up. For example, taking out a $500 cash advance on a credit card with a 5% cash advance fee will incur a $25 fee.
- ATM fee: If you use an out-of-network ATM to withdraw your cash advance, you may incur a fee — often $2.50 or $5.
- Grace period: Most cash advances don’t have a grace period. That means you will start accruing interest from the date of your cash advance. This is in comparison with new purchases which often have a grace period of at least 21 days from the date you make a purchase to the date your statement is due.
- Credit limit: Cash advances typically have a credit limit that’s a portion of your overall credit limit. For example, you may receive a $3,000 credit limit, but only $500 can be used for cash advances. And, if you end up taking out $500 in cash advances, you’re overall credit limit will be reduced to $2,500.
Alternatives to a cash advance
While cash advances may help you in the short term, we recommend avoiding them whenever possible since the fees and lack of a grace period aren’t worth the hassle. There are several alternatives to cash advances that have better terms and may charge fewer fees.
Here are a few options if you need cash fast but want to avoid taking out a cash advance:
- Take out a personal loan. A personal loan is when you take out a fixed amount of money for a fixed time period, at a fixed interest rate. It can save you money compared with cash advances and also provide larger loan amounts — helpful if you need more money than your cash advance credit limit allows. MagnifyMoney, another LendingTree-owned site, lets you compare personal loans from various issuers to find the loan that’s best for your needs.
- Borrow money from a friend or family member. While it may not be ideal, borrowing money from a friend or family member is a cheaper alternative to a cash advance. Just make sure you pay them back in a timely manner and don’t make it a habit, otherwise you risk ruining your relationships!