Have you ever found yourself in need of fast cash to cover a last-minute expense, but you don’t have enough in the bank to cover it?
A cash advance can help you get access to these much-needed funds, but, without having to go through all the hurdles that tend to come with traditional loans.
Let’s take a look at cash advances to help you determine if this is the appropriate loan type for you, as well as ways to access one.
Key Points:
- A cash advance is a short-term loan that lets you borrow money with immediate access, but often comes with high fees and interest rates.
- Several forms of cash advances are available, including credit card cash advances, payday loans, and merchant cash advances.
- Depending on the type of cash advance, you could be paying very high interest on the borrowed funds.
What Is A Cash Advance?
A cash advance is a short-term loan from a lender. If you qualify, you would be given a lump sum of money that would then need to be repaid in full by a specific date. In many cases, interest is charged on the borrowed amount, while some providers offer interest-free cash advances.
Types Of Cash Advances
There are a few variations of cash advances available, including the following:
Payday Loans
With payday loans, you’re given an advance on your paycheque. You’ll be required to repay the loan by your next payday, plus interest.
You can borrow up to $1,500 on a payday loan. However, depending on the province you live in, you may only borrow up to 30% to 50% of your paycheque (up to $1,500).
Payday loans are easy to obtain, with minimal requirements for approval. These lenders do not require credit checks and often simply require that you have sufficient income to cover the loan payment. Moreover, applications are quick to complete and funding is provided within 15 minutes to 24 hours after approval.
However, in return for such fast access to cash, the interest rates charged are extremely high.
Credit Card Cash Advances
Cash advances involve withdrawing a certain amount of money from your credit card, up to your credit limit. Credit card cash advances typically come with very high-interest rates, but they are attractive because they can provide immediate funding via an ATM when the need arises without the need to apply for a loan.
Learn more: What Is A Credit Card Cash Advance?
Interest-Free Cash Advances
Interest-free cash advances allow you to borrow a small amount of money without paying interest. They typically don’t require a credit check, making them ideal for borrowers with bad credit. Some may also allow you to build positive credit if they report payments to the credit bureaus.
Popular options include the following:
| Bree | Bree offers interest-free cash advances of up to $500 to help users avoid overdraft fees and cover unexpected expenses. It doesn’t require a credit check, making it a useful option for borrowers with bad credit. |
| Nyble | Nyble provides a zero-interest line of credit of up to $250, designed to help consumers access funds without requiring good credit. Consumers can also use Nyble to build or improve their credit scores by reporting monthly payments to credit bureaus. |
| MoneyUp | MoneyUp is a financial app that provides users with instant access to a line of credit up to $1,000 through its FastForward feature, with no credit checks and same-day funding. While no interest is charged, a 2.5% transaction fee is required. |
| KOHO Cover | KOHO Cover is an interest-free cash advance of up to $250 that’s designed to help users cover temporary financial gaps. A small monthly subscription fee starting at $2 is required. |
Merchant Cash Advances
A merchant cash advance is not technically a loan. Instead, it’s an advance based on a business’s future credit card sales. In other words, the business is selling a percentage of future credit card sales to gain access to capital immediately.
If you run a business and most of your revenue comes from credit card transactions, you may want to consider a merchant cash advance. The advanced funds will be available relatively quickly.
Keep in mind that while merchant cash advances are legal in Canada, they’re not backed by solid regulations, which can increase risk factors.
Is There A Cash Advance Limit?
With a cash advance, you can’t just arbitrarily take out as much money as you want. Much like any other type of loan, there is a limit to how much you can take out.
| Type | Cash Advance Limit |
| Credit Card Cash Advances | The limit on a credit card cash advance can be your standard credit limit on your card, or it may be another limit set by the credit card company. |
| Payday Loans | A payday loan advance limit is $1,500, depending on the lender and the province you live in. As noted, some provinces limit the borrowing amount to 30% to 50% of your monthly income, up to $1,500. |
| Merchant Cash Advances | The amount you can borrow through a merchant cash advance depends on your business’s financials. |
Understanding The Costs Involved With Cash Advances
There are a variety of expenses that come with cash advances, including the following:
- Interest Rate. In order for lenders to make a profit on loans that they issue, Lenders charge interest on borrowed funds as their way to earn a profit. The rate you’re charged depends on the specific loan type, the lender, and your financial/credit profile. There is typically no interest-free period.
- Fees. Again, different financing options come with their own types of fees. For instance, a credit card cash advance comes with fees associated with withdrawing the funds from your credit account. Some credit card issuers may charge a flat fee for each cash advance made, usually anywhere from $3 or $5. Others, instead, may charge a percentage of the advanced cash, which can be as high as 5%.
- ATM Fees. Most bank machines charge a fee for cash withdrawals, which is imposed by the bank handling the transaction.
Cash Advance Pros And Cons
Before using a cash advance to get quick access to funds, consider the perks and drawbacks:
Pros
Benefits of a cash advance are as follows:
- Easily Accessible: You can access much-needed cash immediately by visiting an ATM, tapping into your credit card account online, or downloading a cash advance app. Typically, no credit check is involved, and no collateral is required.
- Few Requirements: In many cases, you may not need to apply for a cash advance. If you already have a credit card, you can simply withdraw a certain amount of your credit limit from an ATM.
Cons
Consider the following potential drawbacks to cash advances before applying:
- High Cost: Depending on the type of cash advance, the fees can be substantial. This is particularly true for payday loans and credit card cash advances, which come with interest rates significantly higher than those of other financing options.
- No Grace Period: In the case of a credit card cash advance, interest starts to accrue as soon as you withdraw the funds. You don’t have until the credit card payment date to repay the funds borrowed to avoid interest, which is the case with regular purchases made using your credit card.
Will A Cash Advance Affect My Credit?
Yes, a cash advance can affect your credit if you fail to use it responsibly.
Credit Card Cash Advances
In the case of a credit card cash advance, your credit score could suffer if you max out your credit limit. Failing to make high-enough payments every month to bring your balance back down can also negatively affect your scores.
By maxing out your credit card, you’ll be increasing your credit utilization ratio. This is your credit card balance compared to your credit limit. The more you charge, the higher your credit utilization ratio will be, which can negatively impact your credit score.
Payday Loans
In terms of a payday loan or short-term cash advance, your credit score will only suffer if you fail to make your payments on time. That said, payday lenders don’t typically report to the credit bureaus, so your credit score won’t necessarily be affected if you don’t pay.
However, if the payday lender wants their money, they could send a collection agency after you. If this happens, it could be reported to the credit bureaus and therefore be noted on your credit report. In this case, your credit score could suffer.
Learn more: Do Payday Loans Affect Your Credit In Canada?
Merchant Cash Advances
Like a payday lender, merchant cash advance lenders do not report payments to the credit bureaus, as a merchant cash advance is considered an advance and not a loan. While missed payments won’t be reported to the credit bureaus, your lender could sell your debt to a collection agency, which will be noted in your credit report. This, in turn, could negatively affect your credit.
| Want to know what your credit score is before taking on debt? CompareHub by Loans Canada lets you check your credit score for free. |
What Can You Use A Cash Advance For?
You can use the money you obtain from a cash advance to cover any number of expenses, including any of the following:
- Paying rent
- Paying for a car repair
- Covering holiday gift purchases
- Paying for last-minute medical expenses
- Covering the cost of college textbooks
The list is seemingly endless. That said, it’s important that you think hard about what you will be using the money for, since you are committing to a loan that you must pay back in full by a specific due date, plus interest and fees. If you fail to make your payments, your credit score can suffer if the lender reports to the credit bureaus.
Alternatives To Cash Advances
There are other options available besides cash advances to get your hands on fast cash:
Personal Loans
If you can wait a few more days to get access to borrowed funds to cover a pressing expense, consider a personal loan instead of a cash advance. Personal loans are less expensive because they typically come with lower interest rates, and you can borrow much higher amounts, upwards of $50,000.
Keep in mind that you may need to have good credit to qualify for a personal loan, especially if it’s unsecured. That said, alternative lenders are often willing to extend personal loans to borrowers with bad credit.
Credit Card
Rather than withdrawing cash from your credit card, consider putting the expense on the card itself. Many bills can now be paid using a credit card, including utility bills, phone bills, and others. This will help you avoid the higher interest rates and fees that come with credit card cash advances.
You may even be able to pay your rent using your credit card by using a third-party service, like Chexy. This option also allows you to take advantage of accumulating points (if your card is rewards-based) and build good credit with timely credit card bill payments.
Modified Payment Plans
If you’re struggling to continue meeting your financial obligations, consider negotiating a different payment plan or a lower rate with your creditor. Some lenders are willing to defer loan payments or modify your payment plan. This is especially true if you’ve been responsible with your payments.
Bottom Line
Cash advances can be handy when you need money urgently to cover a pressing expense. The cash can be obtained right away with few hurdles. However, some cash advance options come with hefty charges. Be sure that you are using the money for a valid reason and that you can repay the loan amount on time.
