The Top Alternatives to Cash Advance Loans

When you get into a financial bind or unexpected expenses crop up, a cash advance loan from your credit card could do the trick. While they can be helpful, there are many downsides to using cash advance loans, including interest rates, finance charges and other fees. 

There are other routes you can take to get the money without a cash advance. Below, we'll cover the key alternatives to a cash advance and cover how you can avoid a cash advance.

What is a cash advance loan?

A cash advance loan is when you use your credit card to take cash from an ATM — just as you would with a debit card. While this is a convenient way to access quick cash, these cash advance loans generally have high interest rates and fees. 

First, a credit card cash advance generally comes with a 3% to 5% base fee. So, if you took out a $100 cash advance from your credit card, the credit card issuer would charge you $3 to $5. 

Another issue with cash advance loans is they often have a separate — often higher — interest rate. So, you may have a 17.99% interest rate — also known as the annual percentage rate (APR) — on purchases, but the credit card company may charge you 25.99% interest on a cash advance. 

Plus, unlike purchases, a cash advance has no grace period where you can avoid interest by repaying the balance before the due date. Instead, you'll start incurring interest from the day you make the withdrawal. 

Another problem plaguing cash advance loans is the separate credit limit. Your credit card may have a $10,000 credit limit for purchases, but it may only have a $750 credit limit on cash advances. 

Finally, an often-overlooked issue with cash advances is the ATM fee. Depending on what area you're in when taking out the cash advance, the ATM could charge you up to a $10 fee for doing so. In most cases, though, this fee is $1.50 to $3.50. 

What are the alternatives to a cash advance loan?

With the downsides in mind, you may feel a cash advance loan isn't right for you. Fortunately, there are other avenues to securing short-term cash when you're in a pinch. 

Personal loan

A personal loan is one way to get cash without resorting to a costly credit card cash advance. Instead of going to your credit card, you can head to a traditional bank, credit union or even an online lender to get a small, short-term loan for the cash you need. In some cases, you can get the funds as soon as the next business day. 

With good credit, you may be able to get a small personal loan with an interest rate in the 5% to 7% range. 

If the lender has minimum terms — loan amount or repayment terms — greater than your needs, you can always take out the minimum and immediately repay the portion you don't need. This will help you avoid the interest charges on the excess loan amount. 

For example, if you needed $750 for a car repair, but the smallest personal loan you could get was $1,000, you can take out the loan and immediately make a payment for $250 from the loan’s proceeds. This would leave you with $750 for the repairs and prevent interest from accruing on the extra $250 you didn't need.

Then, you can pay off the remaining loan in accordance with the repayment terms. If your budget allows it, you can pay more than the minimum monthly payment and pay off the remaining loan balance quicker, saving you interest charges in the process. 

The downside is personal loans often include extra fees, like application and origination fees. You should consider these when comparing a personal loan to a cash advance. You also generally need good credit to get a satisfactory interest rate. With bad credit, you may end up with an APR the same as or higher than a cash advance loan.

Personal line of credit

A personal line of credit is similar to a loan, but it offers a bit more flexibility. Instead of receiving a lump-sum loan, a line of credit offers you access to any amount of cash up to a particular limit. You only pay interest on the amount you use. 

For example, you may get approved for a $1,000 line of credit but only need $750 for auto repairs. You can use the $750 for the repairs, leaving the remaining $250 untouched, and you'll make principal and interest payments only on the $750 you used.

Like a personal loan, you may run into fees when using a personal line of credit. On top of the origination and application fees, there may also be annual fees. In addition, personal lines of credit often have higher interest rates than personal loans. Plus, the interest rate could be variable, meaning it can increase. 

Balance transfer checks

When credit card companies offer you low- or no-interest balance transfers, they generally want you to do the transfer directly from one card to the other via phone or online. However, some credit card issuers will also mail paper checks that give you the added option of depositing an amount directly into your bank account. 

Unlike a cash advance, these paper check promotions carry the same special APR as the balance transfer, and they only charge a 3% to 5% fee. So, you not only get a lower interest rate for a specified period — typically six to 18 months — but you also bypass some of the fees associated with a cash advance. 

You can use this check to directly pay expenses instead of depositing it in your checking account or savings account in many cases too. So, if you need a cash advance for car repairs, you can just make the balance transfer check out to the repair facility and enjoy the benefits of the special APR. 

The only downside is you need a credit card that offers this deal, which usually requires a good credit score. 

Cash advance apps

The last resort is to use a cash advance app. These are essentially payday loans that offer small loans until your next paycheck and often require no credit check. 

Unlike traditional payday lenders, many of these cash advance apps don’t charge interest. Instead, they rely on tips from people using the service and monthly subscriptions for upgraded services. 

However, like a payday lender, they expect you to repay the loan in full on your next payday. These types of loans can sometimes lead you down the path of repeated borrowing to cover expenses because your next paycheck is smaller due to repaying the loan. This can become a serious issue for those who live paycheck-to-paycheck. 

How can you avoid a cash advance?

While cash advances and their alternatives can help when a financial need arises, you can save money and stress by never needing them at all. Here are some tips so you never have to think about a cash advance. 

Creating a balanced monthly budget

If you find yourself needing extra cash because of overspending, a budget can help.

Choose a budgeting method that works for you and you’re able to stick to every month. When creating this budget, it’s a good idea to leave a little room for emergencies by contributing $25 to $100-per-month into a miscellaneous fund. 

By following a budget, you may reduce the chances of needing a cash advance to make ends meet. 

Building a rainy day or emergency fund

Another reason people turn to cash advances is when an emergency strikes, like a car repair, home repair or medical expense. You can mitigate this risk by building an emergency fund large enough to cover three to six months of expenses. 

You can build your emergency savings using the miscellaneous fund in your monthly budget. If you have some cash left over in the miscellaneous fund at the end of the month, transfer that to your emergency savings account. 

Building a three- to six-month emergency fund may be a challenge for some. You can start smaller by saving up a $1,000 rainy day fund to cover smaller unexpected expenses and work on the full emergency fund at a slower pace. 

Cash advance loans — helpful but imperfect

Cash advance loans have two dramatically different sides, as they can be helpful in a pinch when you need cash, but their high fees and interest charges can put you in a tight financial situation. Fortunately, you can choose an alternative to a cash advance, like a personal loan, personal line of credit or even a balance transfer check to avoid many of these issues. 

You can also try to avoid the need for an alternative to a cash advance loan by setting a monthly budget and building an emergency fund. 

If you're struggling with a credit card cash advance loan or credit card debt in general, Tally's credit card debt repayment app can help. It not only makes your credit card payment for you while you make just one payment per month to Tally, but it also includes a lower-interest line of credit1 that you can use to pay down your higher-interest credit card debts. 

1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate.