A cash advance might seem very tempting when money is tight. After all, it is like using a debit card but without tapping into your checking account, right? Wrong – cash advances pose a variety of difficulties including soaring interest rates that can turn a small loan into a big problem. Here are some cash advance alternatives to consider.
What Is a Cash Advance?
Cash advances are a common feature of many credit cards. A cash advance is withdrawing physical cash against your credit card balance to pay for goods or services that can’t be paid for directly with a credit card
While a cash advance might seem like a good idea, there are severe downsides to considering one. A cash advance is not the same as an ATM withdrawal with a debit card. Cash advances come with very high-interest rates – typically much higher than the purchase APR. The average APR for a cash advance is around 27%, though it might range as high as 30%.
Some of the other drawbacks with cash advances include:
- No grace period, meaning interest accumulates immediately.
- Most issuers charge a cash advance fee, which might be up to 5% of the transaction
- ATM fees may apply
Related Article: How to Request a Cash Advance
What Are Some Alternatives to Cash Advances?
Because of the drawbacks of cash advances, what are some alternatives you may consider instead of one?
Personal loans or payday loans are a common approach to bridging a financial shortfall. If you have a good history with your bank or credit union, asking for a personal loan might be an easy option.
Several financial companies provide bridging loans, payday loans, and other types of personal loans. These companies offer competitive rates that are significantly lower than what you’d pay with either a cash advance or credit card purchases.
Ask Friends or Family
Asking family or friends is another good option for avoiding the high fees and interest from a cash advance.
Borrowing from family or friends comes with its own risks – particularly straining or breaking relationships, but can help avoid applications, risks or credit rejection, and other worries. Always be certain to repay your lender on time to avoid awkwardness, and never forget their kindness.
Not everyone has an emergency savings account or funds for a rainy day. However, those who do have an emergency fund could consider dipping into those funds to help bridge a financial gap between paychecks. However, always ensure that you only remove what you need and don’t treat the emergency fund as a piggy bank.
Use Your Credit Card Instead
A final option is to bypass the cash advance and just use the credit card for the purchase. For some instances, such as when cash is the only payment option, using the credit card to make a purchase might not be possible.
However, in other cases, finding a similar item or service provider that does accept credit cards might be an easier way to finance the costs. This process also bypasses the excessive interest rates f cash advances. Plus, if you repay that charge before the end of the billing period, you won’t incur any interest at all.
Related Article: Paying Off Credit Card Debt During Coronavirus