Do Cash Advances Hurt Credit Score?

Understand how cash advances may affect credit scores with zaving.

Last updated by Zaving Editorial Team, on January 18th, 2024

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What are cash advances and how do they work?

“Cash advances serve as short-term borrowing facilities provided by credit card issuers or select financial institutions, permitting cardholders to withdraw cash against their credit limit via ATMs or bank transactions. This process commonly involves immediate interest charges, typically at rates higher than those associated with regular credit card purchases.

Securing a cash advance means borrowing against the available balance on your credit card. Unlike standard credit card transactions that may offer a grace period before interest accrual, cash advances often trigger interest accumulation right from the moment of withdrawal. The withdrawal amount is contingent upon your credit limit and the specific cash advance limit specified by your card issuer.

Furthermore, cash advances generally come with extra fees, such as ATM charges, cash advance fees (frequently a percentage of the withdrawn amount), and potentially increased interest rates compared to regular credit card transactions.

Given their higher fees and immediate interest accumulation, cash advances are commonly regarded as costly and should be utilized cautiously, primarily for urgent financial needs, considering their higher costs relative to other borrowing methods.”

Can cash advances hurt my credit score?

“Cash advances themselves don't typically directly impact your credit score since they're not reported separately by credit bureaus. However, they can indirectly influence your creditworthiness.

Here's how:

  • Credit utilization: Cash advances add to your outstanding credit card balance, affecting your credit utilization ratio. A high ratio (above 30%) can impact your score negatively.
  • Late payments: Missing payments on cash advances can lead to late fees and damage your credit score.
  • Debt cycle: High interest rates associated with cash advances can trap you in a cycle of debt, impacting your financial management and, subsequently, your credit score.
 

It's crucial to note that credit scores consider various factors beyond cash advances, including your overall credit history, payment record, and interest rates on your financial accounts. To minimize the impact:

Use cash advances sparingly and repay them promptly.
Avoid multiple cash advances in a short span, indicating financial distress.
Regularly monitor your credit report for any errors or discrepancies.
By being mindful of your credit utilization and consistently managing your financial obligations, you can mitigate the potential negative impact of cash advances on your credit score.”

How are cash advances different to payday loans?

“Cash advances and payday loans differ in several key aspects:

  • Funding source: Cash advances are typically linked to credit cards, allowing users to withdraw cash from their credit limit. Conversely, payday loans are short-term loans granted by specialized lenders, often based on the borrower's income.
  • Repayment structure: Cash advances are repaid as part of the credit card balance, usually on a monthly basis, subject to the card's terms and interest rates. Payday loans, however, necessitate a lump-sum repayment, covering the borrowed amount, fees, and higher interest, typically due on the borrower's next payday.
  • Interest rates and fees: Cash advances generally carry higher interest rates than standard credit card purchases, usually around 25% to 30% APR. On the other hand, payday loans tend to have much higher rates, often exceeding 400% APR, in addition to extra fees.
  • Regulation: Cash advances fall under credit card regulations, while payday loans are subject to specific state and federal regulations, which can differ from credit card regulations.
 

These distinctions in funding source, repayment terms, interest rates, fees, and regulatory framework illustrate the differences between cash advances and payday loans, impacting their suitability based on individual financial circumstances.

More of your frequently asked questions about payday loans

Are there restrictions on how I can use a cash advance?

Cash advances might come with usage restrictions determined by the lender. These constraints could encompass capped withdrawal amounts, often a percentage of your credit limit, and prohibitions on specific activities like gambling or investments. Opting for cash advances primarily for immediate financial necessities is recommended due to their higher interest rates.

Can I get a cash advance if I have bad credit?

While bad credit might present challenges, it's still possible to secure a cash advance. Some lenders might extend cash advances to those with poor credit, but they may apply stricter terms, reduced borrowing limits, or increased fees. Exploring options with alternative lenders or payday loans could be viable, yet be mindful of the higher interest rates and fees.

Can I pay off a cash advance early without penalties?

Whether settling a cash advance early incurs penalties varies among lenders. Some lenders permit early repayment without penalties, allowing you to save on interest by paying it off sooner, while others might impose fees for prepayment. Reviewing your agreement or contacting your lender directly will determine if there are added charges for early repayment.

What are the rates and fees associated with cash advances?

Cash advances come with fees and higher interest rates compared to standard credit card purchases. Typically, you'll encounter an upfront fee of 3-5% of the withdrawal amount, alongside interest rates ranging from 25-30% APR, depending on your creditworthiness and the specific lender. These rapidly accruing charges make cash advances a costly financial choice.