How do cash advances work?
A cash advance works like any other advance payment, and obtaining a cash advance typically involves very little time. Most banks, credit card and charge card issuers deal in cash advances by request. The application process is usually online and hassle-free – much like getting an instant approval card.
Depending on your lender, you might need to undergo a credit check or employment verification. If you have a bad credit history, you can address a lender who doesn’t carry out credit checks. It is crucial to remember that cash advances always attract interest – regardless of whether you have interest-free periods on your credit card account.
Cash advance options
- Credit card. Most ATMs let you withdraw money from your credit card account – however annual cash advance fees can be as high as 20 per cent.
- Payday loan. This is when you borrow up to $2,000, which you have to repay between 16 days and 1 year. You usually repay a payday loan by direct debit from your bank account or by way of deductions from your salary on the day you get paid – meaning you will have to make sure you have enough money to afford the repayment.
- Overdraft. You can set up an overdraft facility in your bank to overdraw your account up to a certain limit. It is best to only use this facility for emergencies though, as you won’t be charged any fees or rates before you’ve made an overdraft.
Things to remember before you get a cash advance
Your cash advance facility may offer you the fastest money when you need it, however it’s worth checking against the below questions beforehand:
- Can you afford the repayments? If you are unable to pay off your cash advance – or default on it – you can expect to be charged a default fee until the outstanding amount is paid in full. Always find out when you have to repay the loan before you sign for it.
- How much money do you need to borrow? Make up your mind on what amount of cash you will actually require and where you can draw it from. An overdraft facility can allow you to withdraw a larger amount depending on your finances. Keep in mind that it’s definitely not worth it to pay a fee of up to $5 for taking out $20 from your credit card account.
- Can you afford the interest? The interest on credit card cash advances is charged straight away on a daily basis, and can be up to 10% higher than the usual credit card interest rate. In addition, you don’t get any interest-free days to repay your cash advance, which means you could be in danger of notching up debt if you’re not being careful.
If you decide to get a cash advance, it is best to shop around as cash advance fees differ between lenders.