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Does Cash Advance Hurt Credit Score?

Does Cash Advance Hurt Credit Score

So you need some cash ASAP to meet the unexpected financial requirements. But the savings you have is almost on the nil side and there is no other source of money. Except that for your credit card. You might be thinking of getting a cash advance from your credit card as a convenient way to source money.

But do you know the fact that withdrawing cash from your credit card once or on a regular basis might put you in a position of fiscal debt? It is because of the fact that credit card companies have given the option to cardholders withdraw cash advance from their available limit and fall prey to heavy interest charges and late payment charges.

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This situation crops up another dilemma in the minds of credit card holders as to whether cash advance hurt their credit scores or not. To answer this question, we bring forth information on credit card cash advance, fees to pay, possible cons, and pocket-friendly alternatives to think upon.

So, without any further adieu let’s get started.

What is a Credit Card Cash Advance?

A credit card cash advance is a line of credit available for cardholders not just to make payments by swimming the credit card. But also withdrawing some cash using the ATM. You might not know the fact that withdrawing cash from a credit card is like a short term loan. And, you tend to pay a higher interest rate as compared to swiping the card for shopping, paying bills, making online transactions, etc.

Using a credit card for withdrawing money forces you to pay an average APR of 24% which is 9% higher than the APR charged on normal card swiping. Also, note the fact that cash advance has a separate interest rate charged as compared to swiping. And, this increases your chances of hurting your credit score by not making payment on time.

Understanding the Fees & Charges

There are several fees and charges associated with your credit card. But one that impacts a lot is your credit card interest rate. There is a different rate of interest charged on making purchases, balance transfer, and even cash advance.


What is the Fee

% of Fees

Purchase Interest This interest rate is charged on making payments on goods purchases, paying bills, shopping, and more. An average of 19.99% or lower is charged depending on the card type.
Interest on Balance Transfer This is charged on balance transfer from one card to another. An average of 21.99% is charged for a specific period of time.
Interest on Credit Card Cash Advance Typically, a higher interest rate is charged on withdrawing cash from the credit card. An average rate is charged anywhere between 21.99% to 24.99% respectively.

Source: https://www.ratehub.ca/credit-cards/credit-card-interest-fees

Credit Card Cash Advance Fee

To better understand the impact of withdrawing cash from your credit card, let’s take an example here. If a typical cash advance fee is 5%, then if you borrow $100 so the fee would be $5 on the basis of a 5% fee. If you take out a $500 cash advance, then the fee will rise to $25. However, in some cash, cash advance fees might be equivalent to the amount you borrow, depending on your credit type, limit, and other factors.

Different Ways Cash Advance Hurts your Credit Score

There are mainly two different ways that hurt your credit ratings while borrowing cash from the credit card.

High Credit Utilization Ratio: If you take out cash from your credit card, it increases your credit outstanding balance which in turn increases your credit utilization ratio. To better understand this, let’s take an example if you already owe $500 on your credit limit of $1500, then your credit utilization ratio is 30%. But, if you borrow the cash advance from your credit card let’s just say of amount $300, then your outstanding balance raises to $800 and credit utilization ratio to 53%. It is a noted fact that credit cardholders having a credit card utilization ratio of more than 40% will have an adverse effect on their credit scores.

High-Interest Rate: Another repercussion to find is higher interest rate charges on your monthly payments. This further leads to affect your credit scores if you fail to make the payments well on time. Also, even minimum payment on the credit will not save you from paying higher interest charges that again affect your credit ratings to an optimum extent.

Source Link: https://www.investopedia.com/terms/c/cashadvance.asp

Cons of Borrowing Cash Advance on Credit Card

No Grace Period: Generally, when you make purchases using your credit card, then you will be allowed to make the full payment as per the date indicated in the monthly statement. Also, you get a grace period of 21 days to pay the amount. However, this is not the case with a cash advance. The interest rate is charged immediately after withdrawing the money with no grace period involved. On top of that, if you fail to make the payment, then it directly affects your credit score.

Higher Interest Charges: The interest rate is charged the moment you withdraw the cash but it is on a higher side as compared to making payments using the card. As already mentioned, the annual interest rate on the cash advance is anywhere between 22.9% to 24.99% that add up, if you take a long time to pay back the amount.

Additional Upfront Fees: Along with interest charges, you will also be charged with upfront fees either on a flat-rate basis or on the basis of the amount you withdraw from the card. For example, if you withdraw $500 from the card, then you will be charged $5 as a convenience fee excluding the interest charges.

Hurt your Credit Score: Last but not least is affecting your credit ratings to a great extent. The more money you borrow from the card in advance, the more interest rate would be charged which could be problematic for you to make the payments. Ultimately, you find affecting your credit ratings.

Alternatives to Credit Card Cash Advance

Carry a Balance: Face off the uncertain financial expenditures that might force you to rely on your credit card to make purchases. On the other side, maintain a specific balance to utilize the cash instead of withdrawing the same from the card.

Personal Loan: If your credit rating is strong at the moment, then take out a personal loan to borrow cash, make monthly payments, and a fixed interest rate in a hassle-free manner.

Taking Money from Friends & Family: Better to take financial help from near and dear ones during emergency times to stay away from the interest charges, late payment fees, and upfront cost.

Home Equity Line of Credit: If you are a homeowner, then you can take your property as an asset to avail funds from the home equity line of lenders.

Final Note

If you are thinking of avoiding cash advance from your credit card to stay away from higher interest rates and charges, then apply for short term loans, personal loans, or payday loans with us. We provide you much-needed monetary assistance at any point in time to face off the unexpected financial crunch and also maintain your credit ratings intact.

Find Your Ideal Personal Loans – Request a quote

It takes just 3 minutes to apply and doesn’t affect your credit score

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