What Is a Cash Advance? Types, Costs and How It Works

A cash advance is a way to get cash quickly when you need it most by using a cash advance app, certain credit cards or tapping into your future earnings.

This complete guide will break down the different types of cash advances, their costs and what to look out for so that you can keep your wallet — and credit score — in good shape.

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What Are Cash Advances and How Do They Work?

A cash advance is a method to get access to cash right away, either through an instant cash advance app, earned wage access or a credit card cash advance.

These services all achieve the same purpose: Helping you get cash quickly. But there are a few differences to be aware of. 

What Are Instant Cash Advance Apps?

Instant cash advance apps are financial tools that offer short-term funds with repayment pulled from your next bank deposit. Some instant cash advance apps charge fees or interest, while others are free. It just depends on the app.

What Is Earned Wage Access (EWA)?

Earned wage access is a service that lets you access your earned but unpaid wages before your next scheduled payday. A key difference is that EWA isn't a loan. It’s a way to access money you’ve already earned. 

Services like MoneyLion Instacash^® can help you access up to $500 of your already earned wages with no interest since it isn't a loan, and there's no credit check or mandatory fees*.

What Is a Credit Card Cash Advance?

A credit card cash advance is when you use your credit card to withdraw physical cash against your credit limit. Unlike most cash advance apps or EWA, credit card cash advances typically charge cash advance fees and interest.

The amount you can withdraw is typically between 10% and 30% of your credit limit. If you have a credit limit of $1,000, then you can likely get a cash advance for between $100 and $300.

Here are ways to withdraw a credit card cash advance:

• Visiting an ATM after entering your PIN

• In person with a teller at a bank or credit union

• Online transfer with your card issuer's mobile app

• Convenience check from your credit card issuer

While your cash advance limit can change in the future, a cash advance limit can increase, though that depends on the card issuer and your account's history of transactions.

These cash advance options are typically more attractive than payday loans. Here's a look at the differences.

Cash Advances vs. Payday Loans: Key Differences 

While there’s no set definition for “payday loan,” the CFPB considers a payday loan as a short-term loan generally around $500, with the balance due on or before your next payday. Payday loan laws and availability vary between the different states, but when they are available, you can generally find them in stores or online.

Unlike cash advances, payday loans are known for being very expensive. They typically cost an average of $15 for every $100 borrowed, according to the CFPB. Since most payday loans have a two-week repayment period, this works out to an APR of nearly 400% typically. Here are a few payday loan scenarios: 

• Borrow $100, repay $115

• Borrow $200, repay $230

• Borrow $300, repay $345

• Borrow $400, repay $460

• Borrow $500, repay $575

This also doesn't include extra costs, like renewal fees, repayment plan fees, late fees and prepaid debit card fees. However, the final cost you pay for a payday loan will ultimately depend on your state’s rules and regulations.

Compare this cost to services like cash advance apps, which can help you get up to $500 with no interest or mandatory fees. 

Typical Costs and Fees Associated With Advances

Here's a look at how each service stacks up in terms of interest, fees and terms.

Keep in mind that the figures in the table above are just averages, and the final price you pay will depend on plenty of other factors, including your credit score and income, plus additional costs like ATM fees, out-of-network fees or additional interest charges.

Most lenders cap their cash advances to protect both themselves and the borrower. Extending too much cash can result in a borrower who's buried in debt, which makes it even harder for them to repay.

Can a Cash Advance Impact Your Credit Score?

Here's how cash advances can affect your credit:

1. Potential for missed or late payments: The added debt can be hard to manage. Even one late or missed payment can harm your credit score. This isn't the case for earned wage access, however. Earned wage access doesn't affect your credit score because it's based on your earned pay, not debt.

2. Increased credit utilization: When you take a credit card cash advance, it immediately raises your credit card balance. This can increase your credit utilization ratio and can cause your score to dip.

3. Interest accrual: If you don't repay your cash advance in full, then it may start accruing interest and force you to only make the minimum payments. This can result in compounding costs over time that may make it harder to repay your full balance.

Cash advances can be handy when you're a bit strapped for cash, but are cash advances bad for your financial health? That depends on the type of advance and your plan to repay it. It's important to understand the potential long-term risks to your credit and financial health.

Alternatives to Cash Advances To Consider

Always explore your options beyond cash advances first before signing up for a pricey short-term loan.

If you're looking for more ways to get cash quickly, these options may be worth exploring:

• Small personal loans: These loans come with fixed terms and predictable monthly payments, so you’ll always know exactly what you owe. They're a good option for larger, planned expenses.

• Peer-to-peer (P2P) lending apps: These services connect borrowers directly with individual investors who often offer more flexible approval than traditional banks. You might find lower interest rates and fewer hoops to jump through.

• Buy now, pay later: These services let you split purchases into smaller, interest-free installments. They’re handy for spreading out costs. Just do your best to keep up with the payments to avoid late fees and interest.

• Family and friend loans: Asking your friends or family for money is almost always interest-free, but it can also be potentially awkward.

• Pick up a side hustle, as many pay $500 in a week: A part-time gig or freelance project can be a great way to earn extra cash on your schedule. Even a few hours a week can help bridge the gap between paychecks or cover surprise bills. 

• Pawn shops: Pawn shops can help you get quick cash by using an item as collateral to secure a loan. The downside is that you'll only get a fraction of the item’s value and, if you can’t repay the loan, you’ll lose the item.

Does MoneyLion Split Make Sense for You?

MoneyLion Split may help alleviate some of the pressure of your monthly bills, by letting you make two rent payments each month.

How does Split work, exactly? First, you'll set aside up to 50% of your monthly rent in a MoneyLion Split Reserve account. Split offers funds for the first of the month or when rent is due, so you don't pay the rent out of pocket yourself. You can repay those funds in two payments later on in the month. Your landlord also doesn't need to participate, since Split allows you to pay the landlord directly.

You'll be charged a 3% total fee to use Split, or 1.5% of the total monthly rent on the two payments. You may be able to waive the fees if you meet the direct deposit or account balance requirements.

Cash Advances: What Else To Know

Cash advances can be a helpful safety net when money's tight, but it's important to understand how they work and what they might cost you over time. 

Instant cash advance apps and earned wage access tend to be more affordable and flexible, while credit card advances and payday loans can pile on fees and interest fast. 

Before borrowing, be sure to explore all available options, like picking up a side hustle or tapping into your future earnings to find what fits best. With the right approach, you can get the cash you need today without creating bigger financial headaches tomorrow.

Key Terms

• Cash advance: A way to get cash quickly using a cash advance app, earned wage access or a credit card, usually for a small amount and repaid from your next deposit or credit line.

• Cash advance app: A financial tool that offers short-term funds, with repayment pulled from your next bank deposit. Some charge fees or interest and some are free.

• Earned wage access (EWA): A service that lets you tap earned but unpaid wages before payday. It isn't a loan, so it doesn't create debt or affect your credit score.

• Credit card cash advance: Withdrawing physical cash against your credit limit, typically 10% to 30% of the limit. Interest starts accruing immediately at a higher cash-advance rate — most commonly 30%, per the CFPB — plus a fee usually the greater of $10 or 5%.

• Payday loan: A short-term, high-cost loan generally for $500 or less that is typically due on your next payday, often carrying an APR near 400%.

• APR (annual percentage rate): The yearly cost of borrowing, including interest and certain fees, expressed as a percentage.

• Credit utilization ratio: The share of your available credit you're using. A cash advance raises your balance and can push utilization up, which may lower your score.

• Rollover: Renewing a payday loan when it comes due so you pay only the fees while the lender extends the due date, which can add cost.

Sources

• CFPB: What is a payday loan?

• CFPB: What are the costs and fees for a payday loan?

• CFPB: Data Spotlight: Credit card cash advance fees spike after legalization of sports gambling.

Parts of this article were created with AI assistance. MoneyLion editors reviewed, fact-checked and edited the final version and are responsible for its accuracy.