The Hidden Dangers of Cash Advances

Approximately 63 percent of Americans don’t have sufficient savings to cover an unexpected $500 expense.[1] Even with credit available, the ability to access cash quickly and securely in an emergency remains a necessity.

Life’s Unexpected Expenses

People need an emergency fund for when and if the unthinkable happens—a flash flood that damages your home, a vehicle wreck, a medical emergency.

In emergency situations, the money often has to be available in a hurry. But if you don’t have that money in savings, what do you do? The first step for most people will be to contact family and friends. If they can’t afford to help in such short notice, what other options do you have?

Enter: the credit card cash advance.

What is a Cash Advance?

A credit card cash advance is a short-term cash loan accessible through a credit card. Most credit cards will allow you to take a few hundred dollars in the form of a cash advance, regardless of your credit limit. (The term “cash advance” is also used sometimes used interchangeably with employee paycheck advances and payday loans.)

In our daily lives, we will occasionally encounter situations that require cash. Perhaps your checking account balance is low, and you have a bill set to auto pay. Instead of letting your account balance drop to negative and then paying expensive overdraft fees, you might consider obtaining a cash advance through your credit card to temporarily bring your checking account back up to a safe balance.  Maybe a friend or family member needs to borrow money, and you don’t have the funds immediately available, but you do have a credit card in good standing. In these and other situations, a sum of cash may be necessary.

So, is taking out a cash advance a safe option?

Credit card cash advances are expensive, inefficient and dangerous methods of borrowing. Rates and terms can vary but they all generally carry high fees and interest rates. The average cash advance fee will be between 2 and 5 percent of the amount you receive.[2] This means that if you take out a cash advance for $400 on a card that charges a fee of 4 percent, you’ll pay $16 just to have that cash in hand. In addition to—and more costly than—the initial fee on a cash advance, there’s the interest rate.

The interest rate on a credit card cash advance will always be higher than for a normal purchase transaction using the same card (generally 24 percent for cash advances rather than the customer 18 percent for credit card purchases).[3] Also, interest will begin accumulating the day you obtain the advance. There is no grace period. Only consider obtaining a cash advance if it’s an emergency situation that absolutely requires you use cash, and you cannot access funds from your checking account. For all other circumstances, personal loans can be more affordable.

More Affordable Options

Before you consider a cash advance, you should be aware of the more affordable options available to you. If it’s cash you need, consider borrowing money from friends or family, or taking a personal loan from a bank or other financial institution.

Asking friends or relatives to temporarily help you out financially can be difficult. However, if you are experiencing a financial emergency, it doesn’t hurt to ask, as long as you are honest about your intentions and offer to draw up a contract for repayment. Having a written contract can give your lender peace-of-mind and will also assist you in understanding their expectations. Stand by any agreement reached and remember to repay their generosity when you’re able.

Depending on your credit score and/or income, a personal loan can be a far more affordable option when compared to a credit card cash advance. Banks and credit unions will generally require that you have an existing relationship in good standing with them. But if your credit score isn’t perfect, consider applying for a personal installment loan with OppLoans. We are a direct lender offering larger loans with rates up to 125 percent lower than payday loans and other high-interest, short-term credit products. Payments will always be fixed, so you’ll know exactly how much you owe monthly. You can receive money in your account as soon as the next business day. OppLoans—definitely a better option than taking out a costly cash advance.

OppLoans offers more flexible terms and conditions so you can be better protected from dangerous financial situations. Another way to protect yourself is to build and maintain an emergency fund.

Why Have an Emergency Fund?

An emergency fund is money saved and set aside for—you guessed it—an emergency. It’s only purpose is to help you maintain your quality of life and peace of mind should the unexpected happen. Think of it as creating your own insurance policy. An emergency fund can make all the difference during stressful events such as changes in career, health or residency.

The unexpected will occur—and while you cannot always prepare in other areas, you can use your budget and spending habits to prepare financially. Financial advisors recommend having an emergency fund that could cover three to six months’ worth of expenses.[4] You may lose your job or need unforeseen medical treatment. Someone in your family could need your help paying for a car repair. No matter the reason, be aware that these events happen to everyone at some point or another, making it all the more essential to practice preparedness if and when you are able.

How to Start an Emergency Fund

Starting an emergency fund for yourself and your family doesn’t have to be scary or intimidating. With a bit of discipline, you can begin to treat savings as just another obligatory expense. Consider your phone bill—very few people would classify their cell phones as luxury expenses. It’s something you need and rely on, so you pay it monthly. Think of an emergency fund similarly. It’s something you may need and rely on in the future.Just because you may not need it today, tomorrow, or even six months from now doesn’t make having one any less necessary.

Think of an emergency fund as an obligatory expense, like your monthly cell phone bill.

To begin saving money to build your emergency fund, you first need to track your monthly income and expenses as discussed previously. This will indicate just how much you should keep in your emergency fund. Once you have an accurate idea of how much you spend and earn each month, you can set your emergency fund goal. Remember, your goal amount should cover three to six months of expenses. You can adjust this based on your income and employment stability, as well as your access to credit and home equity, if that’s another option you would have should an emergency occur.[5]

Next, you want to develop a plan to start saving. This plan should include achievable actions, such as setting aside a percentage of each paycheck to go towards your fund. You can set up direct deposit with your employer and dictate that specified percentages or amounts are directed into different accounts automatically. Make your actions and goals as realistic as possible so you don’t become discouraged. Understand that some spending sacrifices will have to be made immediately to benefit your future. You can skip that pizza delivery and add the $15 to your emergency fund. Skip the night at the movie theater and opt to have a home movie night instead. You might be surprised how quickly these savings add up!

Thinking about finances can seem difficult and tedious. But it’s easier than you might think, and the benefits are substantial.


You can best be prepared for a financial emergency by knowing which financial options are right for you and having an emergency fund on hand.

Credit card cash advances may seem like a quick way to get cash now, the risks far outweigh the minimal benefits. You don’t have to settle for a small dollar cash advance. Get a safer, more strategic personal installment loan with OppLoans.

Why OppLoans

OppLoans is the nation’s leading socially-responsible online lender and one of the fastest-growing organizations in the FinTech space today. Embracing a character-driven approach to modern finance, we emphatically believe all borrowers deserve a dignified alternative to payday lending. Currently rated 5/5 stars on Google and LendingTree, OppLoans is redefining online lending through caring service for our customers.


[1]Steiner, Sheyna. “Survey: How Americans contend with unexpected expenses” (January 6, 2016). Bankrate. Accessed May 25, 2016.

[2] Konsko, Lindsay. “What Is a Cash Advance?” (December 5, 2013). Accessed May 31, 2016.

[2] Mecia, Tony. “The High Cost of Credit Card Cash Advances” (January 18, 2014). Nerdwallet. Accessed May 31, 2016.

[4] Hamm, Trent. “20 Reasons Why You Need an Emergency Fund” (July 2015). The Simple Dollar. Accessed May 27, 2016.

[5] “Start an Emergency Fund”. FINRA Investor Education Foundation. Accessed May 31, 2016.