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What Is a Credit Card Cash Advance? 8 Alternatives
What Is a Credit Card Cash Advance? 8 Alternatives
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What Is a Credit Card Cash Advance? 8 Alternatives

Money254
Doris Kendi
March 1, 2022

Credit card cash advances can be very tempting. Understandably so! Imagine a situation where you are in a pinch and need cash urgently - for example, to pay for an urgent medical need. In such a situation, a cash advance might feel like the easy and readily available solution to help you through the glitch. 

Unlike many other types of quick loans, a credit card cash advance provides a means of accessing liquid cash without the need for a formal application - other than the initial credit card application. 

But it comes at a cost. It’s like an expensive designer Band-Aid solution to your financial woes. However, although it can be precisely what you need when you are in a fix, it can quickly snowball into a load of problems. 

Typically, a cash advance charges a higher interest rate than general credit card purchases. Also, unlike credit card purchases, cash advances do not have an interest-free period; the interest begins to accrue right away.

Learn more: What is a Credit Card’s interest-free period? And How Does it Work?

This is why cash advances should be a last resort option when you need quick cash. This article gives you a few other options you can consider the next time you are in a bid. 

What Is a Credit Card Advance and How Does It Work?

In general, a cash advance means a short-term loan from an individual or institution. Therefore, a credit card cash advance is a short-term cash loan from your credit card issuer. In simple terms, a credit card advance is the same as any other credit card purchase, except that instead of buying a product or service, you are ‘buying’ cash.

However, credit cards are originally meant to purchase credit. Withdrawing money with a credit card is stepping out of the original intention. Therefore, lenders treat cash advances differently from credit purchases. 

Costs and Limitations

Although cash advances can be quite an efficient source of cash when you need it - assuming you do not mind the cost - most card issuers do not allow you to take the whole credit line as a cash advance. The cash advance is often limited to a small percentage of the credit line in most cases. 

It is also crucial to understand that cash advances come with a variety of expenses, making them a pretty costly source of funds. These include:

  • High interest. Cash advance interest is expensive in two ways; First, the interest is often much higher than the rate charged on regular purchases. Second, the interest starts accruing from day one as there is no interest-free period for a cash advance. 
  • Bank fees. There is a fee charged by the bank or the owner of the ATM where you make the transaction. 
  • Cash advance fees. Some card issuers charge convenience fees per cash advance transaction. The costs can either be a flat rate per transaction or a percentage of the amount withdrawn. 

8 Alternatives to a Credit Card Advance

While cash advances are tied to your credit card, it is now clear that they have a completely different set of terms and conditions. They come with hefty consequences. This is why you should try to steer clear of cash advances as much as possible. 

Depending on your creditworthiness, here are 8 alternatives that might be better than a credit card cash advance. 

Digital/mobile loan

Digital/mobile loans are a source of credit that you can easily access from your mobile phone. You apply through a mobile app or a USSD, and in most cases, you receive the money instantly into your mobile wallet - in a few instances, you wait a short while for the application to be approved.

These loans are charged reasonable interest rates in most cases, making them cheaper than credit card advances. 

Take out a personal loan

If you have a good credit history, a personal loan from a bank is another reasonable alternative. Although the interest is relatively high and the approval process might be longer, it might still be cheaper than using your credit card to withdraw money. 

You can use our personal loan comparisons page to see some of the personal loan options available to you in Kenya today. 

Try Peer-to-Peer loan

Peer-to-peer (P2P) is another modern alternative source of funds that can be cheaper than a cash advance. It is a system (usually online) where you get to borrow directly from people/entities willing to lend. In most cases, the interest rates are reasonable, credit requirements are less stringent, and the approval rates are higher than most other types of loans. 

Salary advance from employer

A salary advance is a type of payday loan from your employer that is due by your next payday - usually deducted directly from your pay before you receive your cheque. In some cases, no interest is charged on these loans, and if it is charged, it is usually low. This makes it a much cheaper option compared to a credit card cash advance. 

Collateral loan

A collateral loan is a personal or business loan secured by an actual asset. As a result, the loan requirements might be less stringent, and the interest rates might be more reasonable. Therefore, although the approval process might be long and tedious, a collateral loan might be a much cheaper option compared to a cash advance. 

Pawnshop loan

Pawnshop loans are another easy way to borrow money without the need to go through long, tedious processes or too much documentation. If you have an asset with value, you can use it to get a loan from a pawnshop. 

Borrow from family and friends

Borrowing from friends and family can e a little embarrassing sometimes, but it can save you a lot of headaches down the road. If you borrow while keeping things strictly business-like, a loan from a friend or family can come a lot cheaper than the easy-go-to credit card cash advance. 

Learn more: Shortest Route to Fund Your Small Business in Kenya.

Wrapping up

The truth is, all loans have both pros and cons. However, credit card cost advances are expensive enough to be considered a last resort in an actual emergency. A cash crunch happens to everyone and can be a high-stress situation, but that doesn’t mean you should immediately reach for your credit card to save the day. 

Before you get there, take your time to weigh all the options available to you. Depending on the situation and how urgent the need is, a different type of financing may be better than taking a credit card cash advance. 

Doris is a finance professional, freelance writer and SEO expert. She has experience helping businesses of all sizes create content that helps improve their site quality and increase their online traffic. She is a personal finance and wealth creation enthusiast and a frequent contributor to Money254. Visit Doris' personal website to learn more about her work.

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