What is Cash Advance? Definition of Cash Advance, Cash Advance Meaning
A cash advance is a type of financing that consists of requesting cash through a credit card.
That is, it is a type of credit, only that, instead of directly financing a purchase, the person has the cash and can use it as desired.
This advance can be requested through an ATM withdrawal (such as when using a debit card ). But it is also considered a cash advance, for example, when money is transferred to a bank account, just not from a savings account or checking account, but from a credit card.
A cash advance is a high -interest loan compared to other types of loans, such as personal loans. For that reason, it is considered an emergency resource.
Cash advance features
Among the characteristics that define it, the following stand out:
- It can serve to cover overdrafts or discovered. This, linking the credit card to a checking account. So if this account runs out of balance, any expenses that need to be paid will be covered by the credit card.
- It is a very expensive financing, so it is not recommended, only in an emergency.
- They may not only be subject to high interest, but also to a high commission from the financial institution.
- Your request is usually quick and easy.
As we can see, although this type of financing is not usually particularly restrictive or difficult to ask for, it can lead to high financial expenses. For this reason, it is preferable to look for other alternatives, such as a personal loan, if what you are looking for is to make a purchase. In addition, it is suggested to have an emergency fund or an emergency savings account that is linked to the checking account to cover overdrafts.
Cash advance example
An example of a cash advance could be the following: Let's imagine that Adolfo Ramos receives a fine for not paying his taxes on time.
Then, as the sanction imposed exceeds the available balance in Adolfo's checking account, he decides to request a cash advance to fulfill his obligation to the tax authority.
It is an urgent situation, and Adolfo also does not have the possibility of requesting an additional loan to those he already has, and he has not saved in an emergency fund either. Therefore, the only solution seems to be the cash advance.