Credit cards let you pay without cash and even borrow money. But they have features like the credit card cash advance that you should know about. It might look like a quick way to get money, but you should know how it works and what it means. This blog will explain credit card cash advances in Canada.

What is a Credit Card Cash Advance?

A credit card cash advance allows cardholders to withdraw a certain amount of cash with their credit cards. It’s a short-term loan from your credit card issuer, and it’s one of the most expensive types of credit card transactions.

How Does a Credit Card Cash Advance Work?

Requesting a Cash Advance

There are several ways you can take out a cash advance on your credit card. The most common is to use your credit card at an ATM, just like a debit card. You can also use a convenience cheque issued by your card provider or have cash deposited directly into your account.

Credit Limit and Cash Advance Limit

Your credit card comes with a credit limit, which is the maximum amount you can borrow. However, your cash advance limit—how much of your credit you can take out as cash—may be lower than your total credit limit.

When Should You Consider a Credit Card Cash Advance?

While the costly nature of cash advances makes them a less ideal choice, you may want to consider them when you’re in a tight spot and need funds fast. You may be travelling and stuck in a place where your credit card is not accepted, or maybe there’s an emergency and all other avenues for quick cash are unavailable. In such cases, a credit card cash advance can be invaluable. However, ensure you understand the associated costs and have a plan to repay them quickly to avoid excessive interest charges.

The Downside of Credit Card Cash Advances

Despite their convenience in urgent situations, cash advances come with several drawbacks:

High-Interest Rates

The first disadvantage of cash advances is their high interest rates. Unlike regular purchases on your credit card, which might come with an interest-free grace period, interest on cash advances starts accruing immediately, usually at a rate higher than your card’s standard rate. This means that if you fail to pay back the cash advance quickly, the interest can accumulate and increase your debt.

Additional Fees

When you take a cash advance, your credit card issuer may charge you a cash advance fee, which is a certain percentage of the amount you withdraw. This fee is in addition to the high interest you’ll already be charged.  

Impact on Credit Score

Repeatedly relying on cash advances might raise red flags for future lenders and creditors. High cash advance use suggests that you might be having financial issues, and this can negatively impact your creditworthiness. Also, it may affect your credit score, making it harder for you to secure loans or other forms of credit in the future.

Alternatives to Credit Card Cash Advances

Before resorting to a cash advance, it’s good to consider other less costly options for accessing quick cash.

Personal Loans

If your need for funds isn’t immediate, consider a personal loan. Many financial institutions offer short-term personal loans that can be approved within a few business days. While these loans are still subject to interest, the rates are lower than cash advances.

Overdraft Protection

For individuals who usually find their checking accounts running low, going for overdraft protection can be a good choice. This service allows you to withdraw more than your account balance, up to a certain limit. While there might be fees involved, they’re lower than the costs of a credit card cash advance.

Tips for Using Credit Card Cash Advances Responsibly

If you find yourself in a situation where a credit card cash advance is your only option, follow these tips:

• Limit the Amount: Only take out what you need. Remember, you’ll be paying high interest and fees on the amount you withdraw.
• Pay It Off Quickly: Make it a priority to pay off the cash advance as soon as possible to avoid the accumulation of interest.
• Understand the Terms: Make sure you fully understand the terms and conditions of your cash advance, including the interest rate, fees, and repayment method.

Conclusion

Cash advances can be useful in emergencies, but remember, they come with high costs and should ideally be a last resort. In situations where debts seem overwhelming, remember that there are other avenues to explore. One such solution is our debt relief service at EmpireOne Credit. By speaking with one of our debt experts, you can reduce your debt by up to 80%, and interest will stop immediately. This not only provides immediate relief but also a clear path to regain control of your financial health. Call us at (416) 900-2324 to schedule a free consultation. Being debt-free feels good!