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Cash advance vs balance transfer what is the difference

cash advance vs balance transfer

A cash advance is a loan, while a balance transfer is when a borrower transfers existing debt to a new account to save money and reduce the number of monthly payments they have. If you are overwhelmed by debt, know that debt consolidation generally pays off for 69% of borrowers.1 

Want to learn more about each and their differences? Continue reading for everything you need to know about a cash advance vs. balance transfer. 

What Is a Cash Advance?

A cash advance is borrowed funds from a lender made available as cash. Cash advance loans can definitely be convenient, as they are designed to be faster than traditional loan options. Generally, these borrowing options are available for a few hundred dollars and work best for a smaller emergency or expense. You can find cash advances with banks, credit unions, and private lenders that operate online or in person. 

Different Types of Cash Advances You May Find

Although all cash advances provide the same end goal—the ability to borrow funds as cash—you may find a few different types of cash advances when beginning your search. Here are some of the most common: 

Type of Cash AdvanceDescriptionKey Characteristics
Credit Card Cash AdvancesBorrowing cash against your credit card line is typically done at an ATM.– Higher interest rates than regular credit transactions. The average rate is 24.80%.2
– Depends on the credit limit.
– High fees for missed payments.
Bad Credit Cash Advance LoansDesigned for borrowers with lower credit scores (in the lower 600s or below).– Extremely high APRs.
– Small loan amounts.
– Short repayment periods.
– Includes options like payday loans.
Cash Advances for Good CreditAvailable for borrowers with fair to good credit scores.– More competitive APRs.
– Limited cash amounts available.
– Better terms than bad credit options.

What Are the Primary Uses For Cash Advances 

Understanding what cash advances are used for will be essential in determining whether a cash advance is the right choice for you. 

Here are some of the main uses for cash advances that you should know about: 

  • A single rent or mortgage payment
  • Purchasing essentials 
  • Car repairs
  • Small emergency home repairs 
  • School costs 
  • A week’s worth of daycare costs 
  • A medical bill 

Some Advantages and Disadvantages of Cash Advances

Here are some of the pros and cons of cash advances that you should know about before you take out one of these loans: 

Pros of Cash Advances

  • Once approved, the funds can be made available on the same day or sometimes the very next day. 
  • Cash advances can be used for almost any expense, while other loan types may have limitations on usage.
  • Having bad credit can be okay with one of these loan options.

Cons of Cash Advances

  • Cash advances can come with extremely high APRs, which can lead to a cycle of debt and hurt your FICO Score
  • Some options, like payday loans, may not look good to future creditors when they check out your credit reports. 
  • The average cash advance limit is limited, especially when compared to other loans like personal loans. 

What Is a Balance Transfer?

A balance transfer is primarily used as a debt repayment strategy for credit cards. When referencing a balance transfer, that usually refers to using a balance transfer card. 

With a balance transfer card, you can transfer multiple credit card balances into one credit card account until you reach the credit limit for that new card. With this, you’ll only have one interest rate and a payment for all your credit card debt. This can make it much more affordable and manageable to pay off your credit cards. When the same process is done with loans, it is called debt consolidation (with multiple loans) or debt refinancing (when using a single loan to pay off another). The goal here is the same: to get the best deal on interest rates and more manageable debt. 

What Are Balance Transfer Checks?

A balance transfer check is a check issued by the creditor. Balance transfer checks can often be used for various types of personal debt, not just credit card debt. However, it’s best to confirm with the card issuer to understand the specifics. Balance transfer checks typically require a transfer fee. 

In order to use balance transfer checks, borrowers must follow these 3 steps:

  1. Write the Check — Write the transfer amount on the balance transfer check and address it to the credit card company, a loan provider, or yourself. 
  2. Activate the Check — Account holders must activate balance transfer checks by calling the credit card company. Activation informs the creditor that you intend to use a balance transfer check.
  3. Final Review — Before depositing or sending a balance transfer check, ensure that you understand the costs associated with these checks. Read the terms and conditions of your account to prevent being blindsided by unexpected rates or fees.  

What Are Balance Transfer Fees?

Balance transfer credit cards typically come with a fee for transferring debt over, also known as a balance transfer fee. A balance transfer fee is usually charged by the credit card companies that you are transferring the debt from rather than the balance transfer card company themselves. 

Generally, the fee will be a percentage of the balance on the credit card or a fixed amount, whichever value is greater. You can find a balance transfer with different credit card companies, banks, credit unions, and online lenders. Just make sure to read the fine print and thoroughly compare options before making a final decision.

Different Kinds of Balance Transfer Credit Card Offers 

Just like cash advances, when trying to find a balance transfer credit card, you will find some variations in what they offer. Here are some of the different offers you will likely come across, along with information on how they can be helpful: 

Introductory 0% APR Balance Transfers

There are many different balance transfer cards that offer a 0% APR interest rate for the first few months or so, often called a 0% intro APR. This can be a great way to essentially eliminate any interest on your balances for the first few months. Once that introductory offer is over, you will have to pay interest and fees again. 

Low APR Balance Transfer Credit Cards 

Another offer you will likely see is low APR credit cards, which may stay fixed or provide an introductory offer just like 0% APR. With these, you will still have to pay interest, but it will likely be lower than what you had before. Keep track of when those rates change if they do, as you’ll want to be strategic with how you repay your credit card debt if they do. 

Can Balance Transfers Help My Credit Scores?

In a few ways, balance transfers may be able to help your credit scores. The first thing you may notice after a transferred balance from a credit card or multiple is a small increase in all three of your credit scores. This is because credit cards are a form of revolving credit, which means when you pay them off, you’ll have available credit again. 

Due to this effect, when you pay off a credit card, it will help your credit in two ways: increase your available credit while decreasing used credit. The ratio between the amount of available credit you have vs. debt is called your credit utilization ratio and is an important factor in your credit score.  

Some Pros and Cons of a Balance Transfer 

There are definitely some pros and cons you need to consider with a balance transfer credit card before you decide to move forward with one. 

Pros

  • You may get a much better interest rate than what you had previously. 
  • A balance transfer may make it possible to pay off outstanding debt much quicker. 
  • Your monthly payment for your credit card debt may become significantly lower than before. 
  • You’ll only have one single payment to worry about rather than juggling multiple debts. 
  • A balance transfer can help you repay your existing credit card debt much faster than before. 

Cons

  • You may lose a significant amount of time to repay your credit card balances. 
  • If your new APR is only offered within a promotional period and you aren’t able to make a good dent in your balances, then it may not have been worthwhile. 
  • You will likely need good credit to be approved for a large balance transfer amount. 
  • You may save money at first, but once that balance transfer promotion offer ends, you may end up paying more. 

FAQs About Cash Advances and Balance Transfers

What is the typical credit limit for balance transfer cards, and how does it affect my transfer amount?

Just so you know, the credit limit on balance transfer cards varies based on your creditworthiness. It’s important because it determines how much debt you can transfer over. Always check this limit before you decide!

Are there any credit cards that offer balance transfers without a balance transfer fee?

Some credit cards offer promotional periods with no balance transfer fees. It’s worth shopping around to find these offers for a more cost-effective transfer.

How long does it take to complete a balance transfer to a new credit card account?

Typically, a balance transfer can take anywhere from a few days to a few weeks. It’s a good idea to keep paying your old account until the transfer is confirmed to avoid late fees.

Can I transfer a balance to an existing credit card account, or do I need a new one?

Sure thing! You can transfer balances to an existing credit card account, provided you have enough available credit. Just be mindful of the terms and fees associated with the transfer.

What happens if I exceed my credit limit with a balance transfer?

If you exceed your credit limit with a balance transfer, the transfer might be declined, or you could face over-limit fees. Always check your limit first to avoid such issues.

Is there a limit to the number of balance transfers I can do with balance transfer credit cards?

Generally, there’s no set limit on the number of transfers. However, the total amount transferred must be within your credit limit. Just keep an eye on those balance transfer fees each time!

How does the interest on a cash advance balance compare to the interest on a credit card balance after a transfer?

When you’re looking at a cash advance balance, the interest rate is typically higher and starts accruing immediately. On the other hand, with a credit card balance after a balance transfer, you might get lower interest rates. 

A Final Summary From CreditNinja

A cash advance is a borrowing option that makes cash available at the end. In contrast, a balance transfer refers to the process of transferring credit card debt onto a single credit card, called a balance transfer credit card. Balance transfers help borrowers manage their credit card debt. However, you can also consider using a debt consolidation loan or personal loan to consolidate debt.  

If you are looking for additional financial information, check out the CreditNinja blog. CreditNinja offers quick cash loans, but we also provide free online articles to help consumers increase their financial literacy. You can learn how to pay off a loan early, how to calculate a credit card payment, and even whether a lease to own is a good idea!

References:

  1. Debt Consolidation Pays Off for 69% of Borrowers │ U.S. News
  2. Cash Advances: How They Work and What They Cost │ CNET
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