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What are the different types of cash advances?

A:

There are a few different types of cash advances with varying features, but the common denominators among all cash advances are the high interest rates and fees. The most popular type of cash advance is borrowing on a line of credit through a credit card. Cash can be withdrawn at an ATM or, depending on the credit card company, from a check provided by the company that is deposited or cashed at a bank. Cash advances on a credit card often come with much higher interest rates than credit purchases and include a fee for cashing out your credit. Credit card companies either charge a flat rate cash advance fee or charge a percentage of the amount. Additionally, if you use an ATM to access the cash, you are charged a small ATM usage fee.

Credit card cash advances carry a separate balance from credit purchases, along with separate interest rates, but the monthly payment is potentially applied to both balances. However, if you are only making the minimum payment, credit card companies are allowed by federal law to apply the minimum payment only to the balance with the smallest interest rate, which could cause the cash advance balance to sit and accrue interest if only minimum payments are made. Cash advance interest rates and fees vary by credit card company, so it is wise to learn the different features of your specific card before borrowing through a cash advance.

Another common type of cash advance is the payday loan. As with a credit card cash advance, payday loans also have high interest rates and fees. Payday lenders issue loans anywhere from $50 to $1,000 but with interest rates exceeding 100%. The loans are short-term and are required to be paid back on the borrower’s payday, unless he or she wishes to extend the loan, and in that case additional interest is charged. To get a payday loan, you write a post-dated check made out to the payday lender for the amount you plan to borrow, including the fees. The lender in turn immediately issues the borrowed amount but waits to cash your check until your payday comes. People with bad credit or no credit are the most likely to use this type of cash advance as it may be their only option for a loan since banks require a minimum credit score.

Another type of cash advance is to go directly through an employer. Availability of the service, as well as applicable fees and interest, vary by employer, though oftentimes no fees or interest are charged. Before borrowing from any cash advance program, it is wise to do your research to find the best option for your financial needs.

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What are the different types of cash advances?

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