Written by Taylor Mitchell
In Cash Advance
On March 26, 2024
Cash advances are a handy financial tool, but they often come with fees. Learn more in Cleo’s blog.
Cash advances can be a great option when you need a little help before payday.
But they often have hidden fees attached, which isn’t ideal when you’re trying to get out of a tight spot. Getting further into the debt black hole and destroying your credit score isn’t it. Here’s some ✨financial education ✨ courtesy of Cleo.
Let’s look at how cash advance fees work, the risks involved, and how to avoid them.
If you’re short of cash and frantically googling “what is a cash advance?????” dw. In simple terms, it’s like accessing money from your next paycheck—early. These often come with high interest rates and require credit checks and proof of income 😴
Cash advance fees are what you pay for the ~pleasure of taking a cash advance. It’s kind of like when you get charged a processing fee for buying a concert ticket 😭And this can be on top of the high interest and rollover fees they could be charging too.
When you get a cash advance, whether through an app or a credit card, there's normally a fee involved. Let’s break down the difference…
Cash advance apps
One of the most popular ways to get a cash advance is through an app . Can you imagine explaining that to your grandparent? huHHhH.
Basically, it’s a low-stress way to get access to cash without filling out a million pages of paperwork.
A newer entry to the cash advance market, cash advance apps offer an easier way to access your cash before payday. To be competitive, many offer interest-free cash advances with a low monthly subscription charge.
There are a few different ways cash advance apps charge fees…here are some of the most common…
Call it what it is. One fee. One time. Each time you take a cash advance. (These normally come in the express fee form.) And fees can range from $3.99 to $11.99 for a $100 advance.
Some apps use a subscription fee model. This is a monthly fee which typically allows users to access a variety of features including access to a cash advance. These subscription fees typically range from $1 to $19.99 per month.
Traditional cash advances typically come with interest. This can range from 17.99% to 29.99% APR. That means that the amount you owe accumulates… so the longer you don’t pay it back, the more money you owe.
Each app is different, so make sure you read up on their fees before taking an advance.
You might be thinking… What is a cash advance on a credit card? Well it’s basically when you use your credit card at an ATM to withdraw money up to a certain amount. Typically, this comes with additional fees, ranging between 3-5%. So always check your credit card terms and conditions to see how much you’d actually get charged.
Credit card cash advances typically come with higher interest rates, up to 30%. And unlike regular purchases, you don’t get a grace period. Aka, interest builds up the minute you take the cash. Capitalism is wild.
Like math? 🤓 Here’s how much a credit card cash advance could cost..
So, let’s say your card has a cash advance fee of 5%, and you’ve taken out $250. And the cash advance interest rate is 24%. And the ATM fee is $2.50. (Hey, at least you’re not charged a fee for breathing. Yet.)
If you pay it back in a month, that $250 will cost you an extra $19.50, meaning you’ve got $269.50 to pay back in total. And that’s if you’re super on top of your finances. If it takes you a year, which is more realistic for most people, that becomes $325. Yikes.
Not ideal when you could be spending that extra cash on rent (or Taco Bell).
Our advice? Look for better ways to access cash because they do exist 👋🏻
Different providers and cards have varying terms, so some may have more reasonable cash advance fees and interest rates than others. Check your terms to see if you’re gonna get rinsed or not 🙃
And maybe you are. But if you need cash now, it’s easy to overlook the high fees and interest, leaving that for Future You to deal with. That’s kinda mean.
As interest applies from the moment you get a cash advance, the repayment amount can build up quickly. That can really cut into your available funds for stuff like food.
Of course, it’s not just that basic survival thing you need to worry about. You’ve also gotta consider meaningless metrics. So, do cash advances hurt credit scores? 🤔
Some do some don’t… and often it’s buried deep in their terms and conditions.If you’re using a card cash advance there are some credit things you should look out for…
If you have a high credit utilization ratio (yeah, we know, more financial blah), it can impact your score. That’s when you use 50% or more of your available credit. An example is if you have $1,000 in credit and use $500 or more.
And if you miss repayments, these can show on your credit file and dent your score. That’s more likely to happen if you take out a cash advance with a high interest rate that isn’t very affordable for you.
If your cash advance takes you over your credit limit, this can impact your score. Credit reporting bureaus display the highest balance, so other lenders can see if you end up $200 over your $1000 limit.
If a traditional cash advance isn’t right for you, where can you turn when you’re desperate for cash?
Salary advances: Your employer may pay your salary early to cover you.
Personal loans: If your credit score is good, these can be a better option.
Family and friends: Typically, Mom isn’t gonna charge interest.
Cash advance apps: These apps cut the cr*p, often not charging fees or interest 💅
Gig work: If you don’t need the cash immediately, delivering UberEats or freelancing could be a good way to top up your account.
The easiest way to avoid cash advance fees? Avoid cash advances. They’re convenient, but their fees can eat into your budget. Of course, we know that’s not always possible when you’re living paycheck to paycheck.
Wondering how to keep more dollars in your pocket? Here are three great tips:
Use a debit card for cash withdrawals to avoid fees.
Maintain an emergency fund to cover unexpected expenses.
Make a budget is your BFF—check out some of our best budgeting tips.
We also recommend always reading the terms and conditions (T&Cs) of any financial products. Yep, those boring, seemingly endless words contain a lot of important info, including fees, interest rates, and more.
Whew, that was a lot. It turns out that typical cash advances can be pretty pricey on the fees and interest rate front. And lenders aren’t always clear about how much their products can cost you, which can easily catch you out 🙃
If you decide to go for one of these products, triple-check the T&Cs and make sure you can afford the repayments. And make sure you pay it off as fast as possible to stop interest from building up.