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Understanding Cash Advances: What You Need to Know
At O1ne Mortgage, we prioritize educating our clients about financial decisions. This article will help you understand cash advances, their associated fees, and how to avoid them. For any mortgage service needs, feel free to call us at 213-732-3074.
What Is a Cash Advance?
A cash advance allows you to use your credit card’s line of credit to obtain cash. You can get a cash advance at a bank, credit union, ATM, over the phone, or by cashing convenience checks provided by your card issuer. However, the limit for cash advances is usually lower than your total credit limit. For example, if your credit card has a $5,000 limit, you might only be able to take out a $1,000 cash advance. The borrowed amount, plus fees, is added to your credit card balance and must be repaid with interest.
Why Am I Being Charged a Cash Advance Fee?
Credit card companies charge a fee for cash advances. This fee can also apply to other transactions classified as cash advances, such as:
- Transferring money through peer-to-peer apps like Venmo
- Making loan payments
- Completing wire transfers
- Purchasing traveler’s checks or money orders
- Paying for lottery tickets or gambling
- Exchanging foreign currency
Cash Advance Terms and Fees
While cash advances provide quick access to cash, they come with costs, including:
- Cash advance APR: Higher interest rates compared to regular purchases.
- Cash advance fee: A fee charged by credit card companies for cash advances.
- Bank fee: A fee charged by your bank or credit union for in-person cash advances.
- ATM fee: A fee for using an out-of-network ATM for a cash advance.
How Much Is a Cash Advance Fee?
Typically, credit card companies charge 3% to 5% of the cash advance amount or a minimum of $10. Additionally, interest rates on cash advances are higher, and interest may start accruing immediately. Here’s an example of potential costs:
| Cash Advance Amount | Fee | Monthly Payment | Interest | Total Cost |
|---|---|---|---|---|
| $100 | $10 | $19.97 | $9.82 | $119.82 |
| $500 | $25 | $95.31 | $46.87 | $571.86 |
| $1,000 | $50 | $190.62 | $93.73 | $1,143.72 |
| $2,000 | $100 | $381.24 | $187.47 | $2,287.44 |
Should You Get a Cash Advance?
While cash advances are convenient, they can be costly. They might be suitable for small, short-term needs if you can repay quickly. However, for larger sums or longer repayment periods, consider other options.
How to Avoid Cash Advance Fees
Here are alternatives to cash advances:
- Savings: Use your emergency fund to avoid fees and interest.
- Paycheck advance app: These apps offer short-term, interest-free loans with no fees.
- Buy now, pay later (BNPL) app: Make purchases now and pay in installments without interest.
- Friends and family: Borrow from loved ones with a formal agreement.
- Personal loan: If you have good credit, you might get a lower interest rate than a cash advance.
Is a Cash Advance Worth It?
Cash advances can be tempting but come with high fees and interest rates. Explore other options before opting for a cash advance. If a hard credit check is necessary, check your credit score to understand its impact on your rate. Improving your credit can help secure better financing in the future.
For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to discuss your options and find the best solution for your financial needs.
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