A cash advance is basically a short-term loan offered by your credit card issuer. When you apply for a cash advance, you are borrowing money against your card's line of credit. A cash advance is a short-term loan from a bank or alternative lender. The term also refers to a service provided by many credit card issuers that allows cardholders to withdraw a certain amount of cash.
Cash advances usually have high interest rates and charges, but they are attractive to borrowers because they also have quick approval and fast financing. A payday loan or cash advance loan is a short-term loan. You pay a fee to borrow the money, even if it's for a week or two. A cash advance is a short-term loan issued through your card company.
These loans allow consumers to use available credit to request cash. Borrowers repay the loan with interest and fees. When you apply for a cash advance loan, you increase your credit utilization by adding more to your credit card balance. First, the interest rate charged by a credit card on cash advances is usually much higher than the rate charged on purchases.
Cash advances have the potential to adversely affect your credit score, depending on the amount you borrow. Any credit card user with a cash line of credit available on a card can request a cash advance until they reach their limit. But cash advances can be disastrous if the borrower is about to file for bankruptcy, needs to pay a credit card or other bills with interest rates, or simply wants the money to buy more goods. This will be expensive if your credit isn't good, but interest and term charges will still be more favorable than a cash advance.
Unlike a cash withdrawal from a bank account, a cash advance should be returned just like anything else you deposit on your credit card. When you receive a cash advance from a credit card with an outstanding balance, your payments can be used to refund the purchase balance (which has a lower interest rate) before being applied to the cash advance balance (which has a higher interest rate). However, cash advance loans often carry high fees and the danger of being caught in a debt cycle. The annual percentage rate (APR) charged to you for a cash advance may not be the same as the APR for purchases, and you can find it on your credit card agreement or by contacting your card issuer.
Cash advances work in a similar way to installment loans, in that they give you a lump sum of money, but they are not the same thing. If you have an emergency expense, you may be able to charge it to your credit card instead of receiving a cash advance. Instead of taking a cash advance at an ATM, consider overdrawing your checking account with your debit card. If you have multiple credit cards, minimize the cost of a cash advance by using the card with the lowest APR for cash advances and not using a card with a high balance.
When you withdraw cash with a debit card, it's money that already belongs to you, while a cash advance isn't money that comes from your bank account.