What are the disadvantages of taking a cash advance on your credit card?

If you're considering a merchant cash advance, be sure to read this first.

What are the disadvantages of taking a cash advance on your credit card?

It Could Affect Your Credit Rating. No safety net if your money is stolen. Keep a balance on your card. People who request cash advances are more likely to fail to pay their credit card debt than people who don't.

That's one of the reasons interest rates on cash advances are higher. It could also put you at greater risk of falling behind on your credit card payments. Interest and fees are an inconvenience to consider. There's a price to pay for quick access to cash, and sometimes it's much more significant than you'd expect.

Investopedia warns that some payday loan providers charge fees of up to 15 percent of the total amount borrowed plus interest, which can be as high as 100 percent or more of the amount borrowed. The balance may be tilted in favor of a cash advance if you use a free card for a cash advance. In that case, you only have to worry about paying interest. A cash advance is relatively easy to obtain and requires no money available in any account.

However, this convenience can come with a rather steep price tag in the form of high fees and interest rates. Fees generally fall between 2 and 5 percent of the total amount of the cash advance, and there are very few cards that don't charge this type of fee. In addition to this high charge, there will also be a high interest rate associated with your cash advance. Another drawback to using a credit card cash advance is the fact that there is no grace period and interest starts to accrue as soon as you receive the cash.

Finally, applying for a cash advance can also increase your credit utilization rate, which can negatively affect your credit rating. A cash advance could also affect your credit if taking on high-interest credit card debt makes it more difficult to keep track of your bills. On-time payments are an important factor in your credit score; late payments could have a significant negative effect. Credit cards also charge a separate APR for cash advances that is typically higher than the purchase APR Bank of America assigns an APR to cash advances for direct deposits and checks, and a higher APR to bank cash advances, including ATM transactions.

OTC, Overdraft Protection and Equivalents Cash advances are more like short-term loans and come with their own fees and interest rates, usually higher than a regular credit card purchase. You can minimize the interest you pay on a cash advance by paying the balance as quickly as possible, even if that means paying before your bill arrives in the mail. Even if your credit score isn't in top shape, you're likely to find a personal loan with a lower interest rate than a cash advance. But if you find that you frequently use cash advances to pay for things, especially essentials, such as shopping, it's time to take a closer look at your budget and spending and make efforts to align the two.

Merchant cash advances are usually not extended by your credit card provider, but are offered in partnership with the payment processor for credit and debit card sales. Getting a cash advance on your credit card is a quick and easy way to resolve short-term financial problems. Over the years, consumers who use a cash advance to pay for unexpected expenses have declined dramatically. A cash advance does not directly affect your credit rating, and your credit history will not indicate that you borrowed one.

Interest rates on 24-month personal loans are lower than most credit cards, but short-term loan rates from payday lenders are usually a lot. When it comes to credit reports, a cash advance is treated the same as the rest of your credit card debt. If you write a check above your available cash advance limit, your credit company may not accept your check. In addition, you may be able to get a larger sum, since cash advances are usually capped at a few hundred dollars.

When you apply for a cash advance, you use the available balance on your credit card to apply for a cash loan. .