Cash Advance Definition and Purpose

If you need money quickly, you might be wondering, “What is a cash advance?”

A simple cash advance definition is the process of borrowing money against your credit card line. People often begin learning about the meaning of cash advances when they face unexpected emergencies, such as medical bills or essential car repairs.

Although a cash advance may be convenient, it’s a financial tool that should be approached with caution because it often comes with high fees, a steep APR, and interest that accrues immediately.

Our loan experts are here to help answer the common question “What is advanced cash?” and offer alternatives to help you make the best decision for your financial situation.

How Does a Cash Advance Work?

Simply put, cash advances give you access to a portion of your credit card limit in cash.

You can obtain a cash advance by using a PIN at an ATM or by visiting a bank or credit union in person. It’s also possible to get a cash advance from an online or mobile transfer through your bank’s website or mobile app. Meanwhile, some credit card companies provide convenience checks that can be used like cash advances.

What does a cash advance on a credit card look like? Cash advances typically come with limits lower than your total credit limit – around 20% to 30%. There are also cash-like transactions, such as wiring funds, purchasing money orders, and using gambling chips, that are treated as cash advances.

What Fees and Costs Are Involved with a Cash Advance?

Cash advances are notorious for having higher costs than regular credit card purchases.

For instance, there’s typically a cash advance fee of 3% to 6%, or a flat fee of $10 or more. Cash advances usually have interest rates of 20% to 30%, significantly higher than standard purchase Annual Percentage Rates (APRs).

There may be ATM fees for a cash advance, especially if you use an out-of-network ATM. Another consideration, as you’re learning the answer to “What is a cash advance?” is that there is no grace period, meaning interest starts accruing as soon as you withdraw the money.

As an example, let’s say you took out a $500 cash advance. In addition to repaying the $500, you could also be responsible for a $25 cash advance fee, $12 in monthly interest, and a $5 ATM fee.

How Do You Repay a Cash Advance?

What does a cash advance mean in terms of repayment?

You can repay a cash advance on your regular credit card bill. By law, any payments you make above the minimum go toward the highest-interest balances, which are usually cash advances. This helps reduce the amount you owe faster.

As a general rule, we recommend paying off any cash advances as soon as possible. Even daily or weekly partial payments can help you reduce the overall interest you’ll owe.

Pros of a Cash Advance

What are cash advances’ benefits? Here are a few to consider:

• Quick access to cash in an emergency
• No new loan application to complete or credit check required
• No collateral needed, like there would be with a secured loan
• Can be less expensive overall than payday loans

Cons of a Cash Advance

What are some cash advance credit card risks? Here are some considerations to keep in mind:

• Higher APRs and fees compared to standard credit card transactions
• No grace period, so your interest accrues immediately
• No fraud or purchase protection once you’ve withdrawn funds
• Could increase your credit utilization ratio and lower your credit score

How Cash Advances Impact Your Credit Score

What is the impact of a cash advance on a credit card on a person’s credit?

First, a cash advance does not appear as a separate category on your credit report. Companies that review your credit won’t specifically know you took out a cash advance. However, a cash advance can still impact your credit indirectly.

Since a cash advance increases your credit card balance, it can raise your credit utilization ratio. Credit utilization ratios over 30% can cause your credit score to drop.

If you miss payments or are late in making them, a cash advance could further harm your credit. This is why it’s crucial to use cash advances sparingly and work to repay them as quickly as possible.

Alternatives to Cash Advances

Fortunately, there are numerous alternatives to cash advances worth exploring, including the following:

• Use an emergency savings account
• Borrow money from friends or family
• Apply for a personal loan through Tower Loan to secure lower rates and fixed payments
• Do a balance transfer to a 0% APR promotional credit card
• Ask your employer for a salary advance

Cash Advance Frequently Asked Questions (FAQs)

Here are some of the most common questions our customers ask as follow-ups after they understand the basic cash advance meaning.

What is a cash advance limit?

A cash advance limit is the maximum amount you can withdraw in cash with your credit card. The amount varies based on your credit card company’s terms.

Can I get a cash advance with bad credit?

Yes, you can often get a cash advance regardless of your credit score, as long as your credit card is active and in good standing.

Do I have to repay a cash advance quickly?

You don’t have to repay a cash advance quickly, but you should. Interest begins adding up right away, so you’ll save money by paying it off as soon as you can.

What’s a merchant cash advance, and how is it different?

A merchant cash advance is a business funding option that’s based on future business sales. Individuals who use credit cards don’t qualify for merchant cash advances, which are designed for businesses to access quick cash for their operations.

Do foreign currency or money orders count as cash advances?

Yes, many credit card issuers treat money orders and foreign currency as cash-like transactions, resembling cash advance credit card arrangements. These options may also begin to accrue interest immediately.

We Can Help You Access Fast Cash

Now that you understand the answer to “What is a cash advance?” and the viable alternatives, we hope you’re better positioned to make a sound financial decision when you need money quickly.

If you decide a cash advance isn’t right for you, we can help you with a fast, convenient personal loan for whatever you need money for urgently. It’s quick and easy to apply for our flexible, versatile loans online or at a local office near you.

Once you get your loan, you can manage it anytime, anywhere with the Tower Loan mobile app right from your phone without ever needing to visit an office. If you need urgent cash for any reason, don’t hesitate to get in touch with us or complete your application online or through our mobile app today.