Cash Advances: How They Work and How They Can Help

Let’s face it: not having cash on hand can be frustrating. Credit card bills, car payments, and rent schedules don’t always line up with our paycheques, leaving us strapped for cash at the last minute. We’ve all been there!

Add in the last-minute expenses like having to replace the brakes in your car, purchasing a new water heater, or—knock on wood—accidentally dropping your phone in the toilet, and you could easily find yourself in a bind.

Saving for emergencies is not as easy as it sounds. In fact, only 25 percent of Canadians including recent college graduates have money set aside in a rainy day fund. When an emergency hits and your wallet is light, cash advances are a great way to get access to the funds you need,—especially if you need it quickly. This is one of the benefits of saving money. Whether you're preparing for maternity leave or you're getting ready to leave your parents' house, it's crucial to keep some funds safe for the purpose.

But what is a cash advance and how does it work? In the sections below, we’ll dive into all of the details of cash advances to help you make the best choice for you—and your wallet.

What is a Cash Advance and How Does it Work?

A cash advance is a short-term loan that has one sole purpose: to get you your money as quickly as possible. Short and sweet, right? Well, there are actually a few subtle differences in how you can get a cash advance (and how this type of loan works). There are two ways that you can get a cash advance:

Get a cash advance through your credit card

These days, most credit cards offer a cash advance option. This lets you borrow against your available credit to get access to funds quickly. If your credit card has a pin attached to it, you can simply go to an ATM and withdraw cash, just like you would with a debit card. If not, you’ll need to find a bank that offers cash advances through your network (Visa, Mastercard, Discover, or American Express).

Using a credit card for a cash advance can be a quick fix to an empty bank account, but there are a few disadvantages to consider before you start opening your wallet:

If you only need a couple of hundred dollars—and you’re willing to put up with the extra fees and higher interest rates—using a credit card for a cash advance could be a good solution. Building a great credit rating even while taking loans shows you have the financial discipline required to become a venture capitalist.

But what can you do if you don’t have a credit card, or if you’ve already maxed out your line of credit? What if you need more than what your credit card will let you borrow? Luckily, there is a second option: payday lenders.

• Interest rates Credit cards are notorious for high interest rates, and cash advances are no exception. The average credit card APR can be as high as 25 percent, and many cards tack on higher fees for cash advances. Of course, if you have high credit scores, your overall APR will likely be lower—but using a credit card for a cash advance isn’t exactly saving you money. While regular purchases don’t start accruing interest until your billing cycle ends, cash advances will start accruing interest immediately. Without a grace period, you’ll have to be prepared to start repaying that loan right away.
• Extra fees Along with high interest rates, you’ll also need to pay a few fees. Every credit card has its own rules and regulations, so there are a couple of different ways you might see fees show up on your monthly bill.
• Low withdrawal limits Even if you have thousands of dollars in available credit (yes, we’re dreaming of that day too), keep in mind that you won’t be able to take out the entirety of your spending limit. Most credit cards limit cash advances to a few hundred dollars—so if you need to cover more than the cost of a good steak dinner, you could be out of luck.

Get a cash advance through a payday lender

Payday lenders offer short-term loans that are borrowed against your next paycheque. In this scenario, your cash advance will need to be repaid when your next paycheque comes in (although some lenders will allow for longer-term loans). Similar to a credit card, taking out a cash advance with a payday lender lets you get money quickly, bypassing the long wait times from traditional lenders, like banks or credit unions.

So what’s the difference between getting a cash advance from a payday lender instead of using your line of credit? Here are a few key reasons why using a payday lender might be a better option for you:

If you have a steady, reliable source of income and can pay back your loan in a short period of time, getting a cash advance through a payday lender is a great option. This process lets you get cash fast without jumping through hoops—which is the last thing you’ll want to do when you’re strapped for cash!

• Online access Most payday lenders offer a completely online process. You can fill out an application and get approved on the same day, all while sitting in a coffee shop, waiting for an Uber, or even binge-watching your favourite show. Plus, being able to apply for cash advance loans online means you don’t have to deal with standing in line in a bank or at an ATM—or even worse, scheduling an appointment to speak with a lending officer.
• 24/7 application and approval You can’t predict when you’ll need a quick influx of cash—it could happen at two o’clock in the afternoon or two o’clock in the afternoon. No matter what time of day or night (here’s looking at you, night owls), a cash advance loan through an online lender makes it easy to get the funds you need. The best short-term loans in Canada will provide instant e-transfers to deliver funds. This means your money is immediately deposited into your account after approval, taking away the stress of constantly refreshing your banking app, wondering when your money will be available.
• Larger borrowing limits Getting a cash advance through a payday lender means having access to larger loan amounts. Payday loans in Canada range from $100 to as much as $1,500, making it easier to cover larger expenses—like when you get a flat tire or need help covering the rent.