Interest on Cash Advances

Get clarity on cash advance interest rates with zaving, making smarter borrowing decisions.

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 function as short-term loans provided by credit card issuers or certain financial institutions, allowing cardholders to withdraw cash against their credit limit, typically accessible via ATMs or bank withdrawals. However, this convenience often incurs immediate interest charges, often at higher rates compared to standard credit card purchases.

Upon obtaining a cash advance, you're essentially borrowing against the available balance on your credit card. Unlike regular credit card transactions that may offer a grace period before interest accrues, cash advances often trigger interest accumulation right away. The withdrawal amount relies on your credit limit and the specific cash advance limit outlined by your card issuer.

Additionally, cash advances often come with supplementary fees, spanning ATM charges, cash advance fees (usually a percentage of the withdrawn amount), and potentially elevated interest rates in contrast to regular credit card transactions.

It's vital to comprehend that cash advances tend to be considered costly due to their higher fees and immediate interest accumulation. Advisably, these should be used sparingly and primarily for critical, immediate needs, considering their higher costs relative to alternative borrowing methods.”

What are the interest rates on cash advances?

“Interest rates for cash advances tend to be higher than those for regular credit card transactions. While specifics can vary based on the credit card issuer or the provider of the cash advance, here's a general idea:

Credit card cash advances usually incur a higher APR (Annual Percentage Rate), often ranging from 25% to 30%. Additionally, they might involve an upfront fee, typically a percentage of the amount withdrawn.

For other types of cash advances, such as paycheck advances or online services, the rates can vary widely. Some might have similar rates to credit card cash advances, while others might charge different rates or fees based on your creditworthiness, the amount borrowed, or the repayment terms.

It's crucial to review the terms and conditions associated with any cash advance before proceeding, as the interest rates and fees can significantly impact the total cost of borrowing. Always consider alternatives or explore other financial options if you're concerned about high-interest rates associated with cash advances.”

Can cash advances affect my credit score?

“Cash advances might indirectly impact your credit score, though they aren't typically reported as separate entries by credit bureaus.

However, several factors related to cash advances can affect your credit score:

  • Credit utilization: Cash advances increase your outstanding credit card balance, affecting your credit utilization ratio. If this ratio goes beyond 30%, it can negatively impact your credit score.
  • Late payments: Failing to repay a cash advance on time can result in late fees and could be reported to credit bureaus, impacting your credit score.
  • High interest and debt cycle: The high interest rates associated with cash advances can lead to a cycle of debt, making it challenging to manage finances and indirectly affecting your credit score.
 

While cash advances themselves might not directly influence your credit score, the financial behaviors associated with them—like timely repayment and managing increased debt—can impact your creditworthiness. It's essential to be cautious with cash advances and consider alternatives to minimize their potential negative impact on your credit score.”

More of your frequently asked questions about payday loans

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

Cash advances frequently have usage restrictions determined by the lender. These constraints might include capped withdrawal amounts, usually tied to a percentage of your credit limit, and restrictions on activities such as gambling or investing. It's advisable to utilize cash advances primarily for immediate financial needs due to their higher costs.

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

It's feasible to secure a cash advance with bad credit, although it may present challenges. Certain lenders might be willing to provide cash advances despite poor credit, albeit with stricter terms, reduced limits, or increased fees. Exploring alternative lenders or payday loan options could be an avenue, but be aware of the associated higher costs.

Can I pay off a cash advance early without penalties?

The ability to repay a cash advance early without penalties hinges on your lender's terms. While some lenders facilitate early repayment without penalties, allowing you to reduce interest costs by settling the advance early, others might include clauses for prepayment fees. Reviewing your agreement details or contacting your lender will clarify if settling the advance ahead of time incurs extra charges.

What are the rates and fees associated with cash advances?

Cash advances offer immediate access to funds, beneficial for urgent needs, without a lengthy approval process often seen in traditional loans. They're convenient and typically require minimal documentation. However, their downsides include high fees and interest rates, often surpassing those for regular credit card purchases. Additionally, cash advances might have withdrawal limits and can negatively impact credit scores if not repaid promptly, making them a costly borrowing option best reserved for emergencies or immediate needs.