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Can You Get a No-Interest Cash Advance Loan?
You have a financial emergency. You need cash. You don’t have friends or family who can lend you that money interest-free (although if they can, we still suggest you sign a personal loan agreement).
For obvious reasons, you’d certainly prefer to have a no-interest cash advance to see you through this rocky period, but how likely are you to get one?
Short answer: If you're borrowing money, whether it's from a cash advance or a personal loans, you are going to be charged some kind of interest or fee. That's just how this works.
A cash advance is a feature on your credit card.
Before we get into why it's impossible to get a no-interest cash advance, let’s first establish what exactly a cash advance loan is. Essentially, it’s a way to use your credit card to withdraw cash. (For the broader context around cash advances, visit the OppU post What is a Cash Advance?)
The process for getting a cash advance is similar to withdrawing money from your bank account with a debit card. You put your credit card in the ATM, choose the amount you want to withdraw, and get your money.
However, you’ll have to pay a fee for taking out that cash advance--in addition to any possible ATM fees. And since it’s a loan and not an actual cash withdrawal--like it would be if you were using a debit card--this is money that you'll have to eventually pay back.
In that sense, it’s a lot like making a regular purchase on your credit card. All you're doing is adding more money to your total balance. Credit cards are, after all, a line of credit, which means using your card is taking out a loan that you'll eventually have to repay.
One big difference between credit cards and regular loans is that, if used properly, you can borrow money on your card without ever having to pay any money towards interest. Does this mean that you could also take out an interest-free cash advance?
Unlike regular purchases, credit card cash advances don't have grace periods.
The vast majority of credit cards have an interest-free grace period on regular purchases. A grace period is an amount of time before a given purchase starts accruing interest. With credit cards, the grace period is usually 30 days.
As long as you pay your credit card bill on time and in full every month, you’ll avoid paying any interest, which means you'll be getting interest-free credit. Pretty neat, right?
Unfortunately, this is not the case with credit card cash advances. There is no grace period for cash advance loans, so interest will start building up immediately.Not only that, but they interest rates you'll be paying on that cash advance are going to be higher than the rates you'd pay on normal purchases.
To compare interest rates, you’ll want to use a number called the annual percentage rate, or APR, which measure how much a loan or credit card will cost--including both fees and interest--over the course of a full year.
The average APR for a credit card is a little over 16%. But the average APR for a credit card cash advance is almost 24%. And that's only the average rate. The lower your credit score, the higher the rate you'll likely have to pay.
So not only will you definitely be paying interest on your cash advance, you'll be paying more than you would be on a normal purchase.
Interest-free cash advances and loans don't really exist.
In general, you’re going to have a really hard time finding interest free loans and cash advances, because, with a few exceptions, interest is how lenders make their money. Ever since ancient Middle Eastern farmers started lending each other animals and seeds, they required their loans be paid back with some additional goodies on top for their trouble.
As we mentioned above, your credit score will determine what kind of interest you’ll have to pay on loans you take out. But don't let those higher rates lead to your balances ballooning out of control. That will just make it harder to get better rates on future loans and credit cards, which will mean even more money paid towards interest.
So far we’ve been operating under the assumption that you have a credit card. What if you don’t?
You should avoid loans that advertise as "cash advances."
First of all, if you don’t have a credit card, you’re not going to be able to get a cash advance loan, let alone the fabled interest-free cash advance loan.
“But wait,” you say, haven’t you seen ads for cash advance loans in storefront windows and online that suggest you can get a cash advance loan without a credit card?
Here's the thing: Those aren't really cash advance loans. Instead, they're bad credit loans that don’t require you to have a good credit score. And while some bad credit loans--especially installment loans--can be a good financial solution, many of them are not. They are expensive predatory loans that will drive you deep into a cycle of debt.
Two risky kinds of bad credit loans are payday loans or title loans.
Both payday loans and title loans have very high APRs and very short payment terms, with title loans using your car as collateral and repossessing it if you can’t pay your loan back. These are the kinds of loans where the lender would rather you roll your loan over, extending the due date in return for additional interest. It works out great for them, even as it steadily drains your bank account.
What are some other options besides a credit card cash advances?
Assuming your credit score is in a good place, you can probably get a loan with a decent APR from a bank. If your credit score is in a bad place and you don’t qualify for a credit card, you might still be able to get a secured credit card. A secured credit card requires you to use cash as collateral, but if you don’t use it too much and pay your bill on time, in full every month, it’s a great way to build your credit.
But if you have bad credit, no credit card, and need a loan right now, you’re probably going to have to choose the best of some less than ideal options. When searching for the best loan for you, be sure to compare APRs to find the lowest rate you can qualify for and also check online reviews. You wouldn’t eat at a restaurant with under three stars on Yelp, so don’t get a loan that’ll give your bank account metaphorical food poisoning.
And of course, be sure to read thoroughly before you sign anything. A no-interest loan might be a fantasy, but that doesn’t mean you have to settle for a payday loan.