Do Cash Advances Hurt Credit?

Understand how cash advances can impact your credit through zaving today.

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 a type of short-term loan accessible to credit cardholders through ATMs or bank withdrawals, allowing them to withdraw cash against their credit limit. However, this convenience comes with immediate interest charges, often at notably higher rates compared to regular credit card purchases.

When you initiate a cash advance, you're essentially borrowing from your available credit card balance. Unlike standard purchases that may offer a grace period before interest accrues, cash advances start accruing interest immediately. The withdrawal amount typically depends on your credit limit and the cash advance limit outlined by your card issuer.

Additionally, these transactions come with supplementary fees, including ATM charges, cash advance fees (usually a percentage of the withdrawn amount), and potentially higher interest rates in comparison to regular credit card transactions.

It's crucial to exercise caution with cash advances due to their elevated fees and instant interest accumulation. Given their costliness, they should ideally be used sparingly and only for urgent financial requirements, considering their higher overall expenses relative to other borrowing options.”

Can cash advances hurt my credit score?

“Cash advances don't generally directly affect your credit score because they're not listed separately by credit agencies. However, they can affect your credit in other ways. When you take a cash advance, it can increase how much of your credit card limit you're using. If this goes over 30%, it could hurt your credit score. Furthermore, if you don't pay back the cash advance on time or don't pay it at all, you might get charged extra fees, and this could hurt your credit score too. Cash advances tend to have high interest rates, which might lead to more debt and make it harder to manage money, affecting your credit score indirectly.

Remember, your credit score depends on many things, not just cash advances. To reduce any harm, use cash advances only for emergencies and pay them back quickly. Don't take out lots of cash advances quickly, as this can show money problems and affect your credit score. Also, check your credit reports often to catch mistakes that could hurt your score.

Using cash advances wisely and being smart with credit can help limit any negative impact on your credit score.”

How are cash advances different to payday loans?

“Cash advances and payday loans, though both offering quick access to funds, have notable differences:

  • Source of funds: Cash advances are typically associated with credit cards, enabling cardholders to withdraw cash against their credit limit. Payday loans, however, are standalone loans from specialized lenders, often based on the borrower's income.
  • Repayment structure: Cash advances are repaid alongside the credit card balance, typically on a monthly basis, subject to the card's terms and interest rates. Conversely, payday loans require a lump-sum repayment, including principal, fees, and high interest, usually due on the borrower's next payday.
  • Interest rates and fees: Cash advances usually carry higher interest rates compared to standard credit card purchases, ranging from 25% to 30% APR. In contrast, payday loans often feature significantly higher rates, often exceeding 400% APR, along with additional fees.
  • Regulation: Cash advances are governed by credit card regulations and agreements. On the other hand, payday loans are subject to specific state and federal regulations, varying in stringency and generally differing from credit card regulations.
 

These distinctions significantly impact the cost, repayment terms, and overall financial implications, prompting individuals to carefully consider their financial needs and thoroughly review the associated terms before opting for either a cash advance or a payday loan.”

More of your frequently asked questions about payday loans

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

Cash advances often entail limitations on usage set by lenders. These restrictions may involve capped withdrawal amounts, often a percentage of your credit limit, and bans on activities such as gambling or investment purchases. Opting for cash advances for essential expenses or emergencies is prudent, given their higher interest rates.

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

While having bad credit might make it more challenging, it's still possible to obtain a cash advance. Some lenders might accommodate individuals with poor credit, although they could apply stricter terms, lower limits, or higher fees. Certain alternative lenders or payday loan providers may consider your application regardless of your credit score, but be cautious as these options often carry higher interest rates and fees.

Can I pay off a cash advance early without penalties?

The ability to pay off a cash advance early without penalties is contingent upon the lender's policies. While some lenders permit early repayment without penalties, offering the opportunity to save on interest by settling the advance ahead of time, others might stipulate fees for prepayment. Checking your agreement details or contacting your lender will determine if settling the advance early incurs additional charges.

What are the rates and fees associated with cash advances?

When considering cash advances, expect elevated fees and interest rates compared to regular credit card transactions. Typically, an initial fee of 3-5% of the withdrawal amount accompanies interest rates varying between 25-30% APR, contingent on your creditworthiness and the lending institution. These accumulating costs make cash advances a pricey financial choice.