Everyone who has a credit card must have heard of a cash advance before. However, not everybody understands its concept. A cash advance permits a card user to withdraw money from their credit card when they find themselves in tight financial situations. Read on to know more about a cash advance and how it works.
What Is a Cash Advance?
A cash advance is a loan that a credit card company provides its users. It’s useful in an emergency and there’s insufficient cash on your card. When you request a cash advance, you’re borrowing cash against your card’s credit.
A cash advance is a great option, but it is expensive. Also, a cash advance is not like a normal cash withdrawal because you must pay the money back.
How Does Cash Advance Work?
Withdrawing money from your bank account requires a debit card. However, this is not in the case of a cash advance. When you get a cash advance, it gets charged to your credit card. The reason is that you must pay back when there’s money on your credit card.
Though cash advance comes with benefits, it also comes with fees and daily interests. Here’s a list of how to request a cash advance.
- At the ATM: If your credit card has a pin, the fastest way is to go to the ATM and request a cash advance.
- Go to the bank: Visiting the bank is the next option if your card doesn’t have a PIN and you can’t wait for the customer’s service response.
- Check: Some credit cards come with a check. With this check, you can withdraw your cash advance and deposit it.
How Much Does a Cash Advance Cost?
A cash advance’s cost depends on many reasons, including how much you’re borrowing. However, it’s essential to understand that cash advance comes with fees and interests. These interests start to count from the date you received the cash advance.
Meanwhile, up-front fees are deducted right from when your card is credited with the cash advance.
Types of Cash Advance
Credit Card Cash Advance
This is the most popular cash advance. However, they have a high-interest rate. Credit card cash advances have a separate balance from normal credit purchases. Also, they don’t provide a low-interest rate offer, but they are easy to get.
Merchant Cash Advance
Merchant cash advances don’t charge based on an annual percentage range. You repay your debts based on your daily profits. So, it means that you make a daily replacement at 1.2-1.5.
In this type of cash advance, the lender determines the amount of loan to give you, depending on the state’s rules. When the loan is approved, the lender makes an electronic deposit or gives the borrower cash.
Cash advances have been of great help to users in emergencies. However, it would help if you didn’t use them frequently. If requesting cash advances becomes a habit, debts could pile up, affecting your budget.