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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. 

What Is A Cash Advance?

A cash advance is simply 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 paid back in full by a certain date – plus interest. 

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 through payday loans, 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 very few requirements for approval. These lenders do not require credit checks and often simply require you to have enough 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 may also involve withdrawing a certain amount of money from your credit card. Credit card cash advances typically come with very high-interest rates, but they are attractive because they can provide immediate funding when the need arises.

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.  

How Do Cash Advances Work?

Depending on the type of cash advance you choose, the way it works will vary. 

Payday Loans

Payday loans work by having a certain amount of money supplied to the borrower from a lender. These types of loans are rather easy to get approved for. Bad credit borrowers often seek out these types of loans because these lenders don’t typically check credit scores. 

All that is typically required is that the borrower is of the legal age of majority (18 years), is a Canadian resident, and can prove that they have a steady flow of income.

Once this information is verified, the lender will supply the requested loan amount. The loan must then be paid within a short time frame, usually within two weeks to a month, or when the borrower’s next paycheck comes in, hence the name “payday loans.” Usually, these loans must be fully repaid in one lump sum rather than in installments.

Credit Card Cash Advance

A credit card cash advance is the more popular type of cash advance and involves accessing cash through a credit card. If you already have a credit card, you may be able to access fast cash by withdrawing it through an ATM or bank teller up to your cash advance limit, which may be lower than your regular credit limit for purchases. 

Credit card interest rates are already high, but the rates charged on cash advances from a credit card are even higher. Further, the interest will start accruing right away without any grace period. You’ll also be charged a cash advance fee, which usually is $3-$5 per advance or 3%-5% of the cash advance.

It’s also important to remember that a credit card cash advance also carries a separate balance from your credit card expenditures, but you might be able to apply your monthly payment to both balances.

Merchant Cash Advance

Every day, a certain percentage of your business’s daily credit card receipts are withheld to repay the merchant cash advance, which is known as the “holdback.” This will continue until the full advance is repaid. 

Instead of paying a specific interest rate, as is the case with the typical loan, a merchant cash advance does not charge an APR. Instead, repayments are based on a ‘factor rate‘ of daily sales, which is an amount multiplied by the initial loan amount. Generally speaking, factor rates range between 1.1 and 1.5, depending on the agreement.

For instance, if you borrow $10,000 at a factor rate of 1.2, you would have to pay back $12,000 ($10,000 x 1.2), plus any applicable fees. 

The repayment is directly influenced by your business’ daily transactions. The more credit card transactions your business does, the faster you can pay back the advance since repayment is based on a portion of the merchant account’s daily balance. On the other hand, if these transactions are lower at any point, the withdrawal from the account will also be less. 

In this way, repaying the advance is easier, since it’s dependent on how busy or slow your business is. 

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. 

Credit Card Cash Advance

With a credit card cash advance, your limit can be your normal credit limit on your card, or it may be another limit set by the credit card company, which will likely be lower than your typical credit limit on your card for purchases.

Payday Loan

For short-term cash advances or payday loans, the borrowers can get up to $1,000 to $1,500, depending on the lender and province they live in. Each province has their own rules and regulations for payday lenders. Some provinces limit the borrowing amount to 30% to 50% of the borrower’s monthly income, up to $1,500. 

Merchant Cash Advance

The amount you can borrow through a merchant cash advance depends on your business financials. However, generally, you can borrow anywhere from a few thousand to a couple hundred thousand.

Understanding The Costs Involved With Cash Advances

There are a variety of expenses that come with these loan types, including the following:

  • Interest rate. In order for lenders to make a profit on loans that they issue, they charge an interest rate.
    • With payday loans, lenders charge between $15 – $25 per $100 you borrow. The amount you’re charged depends on which province you live in. 
    • On a credit card cash advance, the rate that you are charged may be different (and usually higher) than the rate that your credit card purchases are charged. Moreover, the interest starts to accrue immediately with no grace period.
    • With a merchant cash advance, you’ll be charged a factor rate between 1.1 and 1.5. 
  • Fees. If you are taking out a credit card cash advance, you could be charged fees to actually withdraw 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 ATM machines charge a fee to have cash withdrawn, this is imposed by the bank that is 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 

  • Highly accessible. You can get your hands on the much-needed cash immediately by visiting an ATM. There’s no application process involved and no collateral is required. 
  • Easy 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

  • High cost. The APR on a credit card is already high enough on purchases. But the rate for cash advances is even higher. You could be paying upwards of 23.99% or more on credit card cash advances. And the more you withdraw, the more you’ll have to pay in interest.
  • No grace period. The interest charged against the cash advance starts accruing 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. Want to know what your credit score is before taking on debt? CompareHub by Loans Canada lets you check your credit score for free.

Credit Card Cash Advance

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 pull your credit score down. 

Payday Loan

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.

Merchant Cash Advance (MCA)

Like a payday lender, merchant cash advance lenders do not report payments to the credit bureau, as an MCA 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. 

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. You want to make sure that the reason for the cash advance is a valid one. If you fail to make your payments, your credit score can suffer if the lender reports failed payments to the credit bureaus.

Alternatives To Cash Advances

Aside from a cash advance, there are other options to consider 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.

Credit Card Payments

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. 

Modified Payment Plans

If you’re struggling to continue meeting your financial obligations. Consider negotiating a different payment plan or lower rate with your creditor. Many lenders are willing to defer loan payments or modify your payment plan. Especially, if you’ve been responsible with your payments. 

Bottom Line

Cash advances can certainly come in very handy. Particularly when you need money right away to cover a pressing expense. The cash can be obtained right away with few hurdles in the way. However, these types of loans tend to come with some hefty charges. Typically, in the form of sky-high interest rates and other fees. As such, be sure that you are using the money for a valid reason. And that you can repay the loan amount accordingly. 

Cash Advance FAQs

When should I pay back my credit card cash advance?

Since interest starts to accrue the moment you withdraw the funds from your credit card account, you’d be well-advised to repay the money as soon as possible. The more time that passes before making the repayment, the more expensive the cash advance will be.  

What are the requirements for a payday cash advance?

In order to get approved for a payday cash advance. You’ll generally need to be a Canadian resident, be the age of majority within your province and have a steady income. In some cases, lenders may also require you to have an active chequing account with transactions made within the past 3 months. And that you receive your paycheque via direct deposit. 

What is a cash advance fee?

A cash advance fee is charged by your creditor for using your credit card to withdraw cash. This fee can be charged on a per-transaction basis or as a percentage of the amount withdrawn. The creditor may deduct the fee from the cash advance at the time of withdrawal or charge it to your credit card bill.  

Is a credit card cash advance right for you?

If you already have a credit card and are in desperate need of fast cash. A cash advance may be worth considering. However, you should be aware of the high-interest rates that come with cash advances. And don’t forget that interest starts to accrue as soon as you make a withdrawal.  If you don’t want to be subject to such high fees and can wait a few days to get access to the cash. Consider alternatives to a cash advance, such as a personal loan. 


Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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