Is a Credit Card Cash Advance Better than a Cash Advance Loan?
When you’re in a tight spot and need cash, a cash advance from a credit card company can seem like the best solution. This isn’t always the best option, however. Before you make that check out for cash or withdraw the money through an ATM or bank, make sure you understand the pros and cons to a credit card cash advance versus a cash advance loan.
Fees and Interest
Depending on your state’s laws, a credit card cash advance may come out cheaper than a cash advance loan. With a credit card cash advance, there is usually a transaction fee and then you have your interest. The interest begins accruing the second you cash that check or withdraw the cash from your credit card through an ATM or bank.
According to Bank of America, in 2015 the fees for a check cash advance are $10 or 3 percent of the amount borrowed, depending on which amount is higher. Interest for check cash advances are as high as 23.99 percent and 24.99 percent for a bank or ATM cash advance. With Chase Bank, the APR for a cash advance is 24.99 percent and the fees $10 or 5 percent, whichever is higher. American Express cash advances come with an interest rate of 25.24 percent and a transaction fee of $10 or 3 percent.
For a cash advance loan, some states limit the interest that a company can charge. For example, in Illinois, lenders cannot charge more than $15.50 per $100. If you live in a state where there are restrictions on the interest, you may find a cash advance loan is a better idea.
Repayment Terms
Here is one area where a cash advance loan can be a much smarter option. When you take out a cash advance loan, you have a specific amount of time before you must repay the money. Once you’ve paid it back, the debt is gone. With a credit card, the payments continue for years, unless you pay extra each month. If you’re making only minimum payments, you can spend hundreds or thousands in interest. It ends up wasting your money.
For example, if you borrow $1,000 and have repayment terms of 14 days, a cash advance loan with fees of $15.50 per $100, you will run up $155 in fees. When you pay back the money in two weeks, you will pay $1,155. If you cannot make that payment, the interest piles on. It’s imperative that you pay it back on time.
Borrowing that same amount with a credit card cash advance, using a 24.99 percent interest rate, and 3 percent transaction fee, making a minimum payment of $35, you’d need 45 months to pay off the $1,000. At the end of that time, you’ve paid $1,575. By taking out a cash advance loan and paying the entire amount back at the end of two weeks, you save $420. You can pay it off quicker and reduce the amount in interest by paying more, but many see the minimum payment due and simply pay that.
