How does it work?
Cash advances are a credit card feature in which the cardholder can effectively ‘purchase’ cash with their card and withdraw it from an ATM or a bank. It differs from a debit or chequing account withdrawal in that, like any credit card purchase, the cash advance must be repaid in full, and it is subject to interest. A credit card’s cash advance interest rate may be higher than its regular purchase interest rate, and its interest is often applied immediately, without the usual credit card grace period. Though most cash advance interest rates are prohibitively high, a cardholder can minimize the cost of a cash advance by using one of a few credit cards with low cash advance interest rates.
The cash accessed from a cash advance shows up as debt on a credit card’s bill. The interest a cash advance is subject to can then be further minimized, or temporarily eliminated, by transferring the cash advance debt to a balance transfer credit card with a 0% interest promotion.
Advantages
Emergency Solution. Though not sustainable as a long-term solution to chronic cash flow issues, this hack can be a potential quick fix.
Flexibility. It may be more convenient to make some types of payments with cash rather than credit (e.g. a rent payment).
Cash at Low Interest. Pairing a cash advance with a balance transfer can give you the flexibility of cash with the low or no-interest relief temporarily offered by a balance transfer promotion.
Disadvantages/risks
The cash advance-balance transfer combo isn’t without its faults, and if it’s not executed carefully it can exacerbate your financial issues rather than ameliorate them.
No guarantees. Remember, a cash advance is subject to its own interest rate until you execute the balance transfer, and a credit card issuer is not obligated to approve your balance transfer card application. Check your credit score before you take out the cash advance and consider whether or not you will be categorized as a desirable applicant by the card issuer.
Balance transfer limitations. Keep in mind that banks generally prohibit balance transfers of debt that is already owed to them. For example, debt from a TD credit card will not be approved for a balance transfer to MBNA, which is a division of Toronto-Dominion Bank. Same goes for Scotiabank and Tangerine.
Additional fees. Most balance transfers come with a one-time transfer fee between 1–3%. A cash advance may be subject to a one-time fee as well, plus withdrawal fees at the ATM.
Post-promotional interest rates. A balance transfer’s attractive, low-interest promotional rate won’t last forever. After the promotion ends it will likely jump up considerably, and if you are unable to pay off the debt before the promo’s end, your cash flow issues might multiply. Carefully evaluate a promotion’s advantages and disadvantages before deciding if a balance transfer is right for you.
Credit score hits. Taking out a cash advance can increase your credit utilization ratio, which will have a negative effect on your credit score. Plus, each credit card application results in a hard credit check. Having several hard checks in a short period of time can hurt your credit score and will not inspire confidence in future creditors.
Alternative borrowing solutions
Only you understand the comprehensive picture of your financial situation and whether or not a cash advance–balance transfer combo is a financially responsible strategy for you. If you’re uncertain of your capability to be approved for a balance transfer promotion or to repay the transferred balance after the transfer’s promotional period ends, you might instead consider other alternatives.
Solo cash advance
Some cards, like the Scotiabank Value® Visa* card, might have low-interest cash advance promotions for new cardmembers that negate the need to follow a cash advance up with a balance transfer. Just remember, a promotional cash advance interest rate won’t last forever; after the promotion ends its interest rate will increase.
0% introductory interest rate on Cash Advances, including Balance Transfers, for the first 6 months (12.99% after that; annual fee $29).¹ Plus no annual fee in the first year.¹ Offer ends October 31, 2023.
¹ Conditions Apply. Visit here for the Scotiabank Value® Visa Card to learn more.*
Solo balance transfer
If you’re not strictly in need of cash per se, you might forgo the cash advance and utilize just a balance transfer instead. You can make purchases on your credit card and then transfer the credit card balance using a top balance transfer card.
Low-interest personal loan
Though you won’t be able to find a 0-interest loan in Canada, you might be able to find a low-interest loan. The best personal loans in Canada might offer interest rates as low as 3%. If you can get an interest rate close to that on a personal loan, you could ultimately pay less money for a loan than you would via the cash advance–balance transfer maneuver after factoring in the cash advance interest rate, ATM fees, the balance transfer fee, and the post-promotional balance transfer interest rate. Loan interest rates can vary substantially from one lender to the next, and the best way to find the lowest interest rate available to you is to use a loan search platform like Loans Canada, which will cross reference your basic financial info (income, existing debt, etc.) with a wide network of Canadian lenders.
Borrowing from friends or family
Can we take back what we said about there being no such thing as a no-interest loan?
The one exception to that might be borrowing from people with whom you have a special relationship, and who might be willing to lend you money with no interest. Many of us are embarrassed to ask our loved ones for financial help, but it will ultimately hurt less to swallow your pride than to swallow compounding interest rates.
FAQs
Can you get interest-free loans?
Unfortunately, there are no truly interest-free loans available from mainstream lenders in Canada. That said, you can obtain a low-interest loan if you have a high credit score and steady source of income, and you may also be able to obtain low-interest cash via a credit card cash advance followed by a low-interest balance transfer.
What is the cheapest way to borrow money?
The cheapest way to borrow money from traditional financial institutions, like banks, is to ensure that your credit score is strong and that you have a steady source of income, which will qualify you for low-interest loans. If you do not have a strong credit score and your income is inconsistent, you might opt to instead borrow from friends and family.
Can you balance transfer a cash advance?
Debt from a credit card cash advance can be balance transferred to another credit card, provided the debt is being transferred to a different financial institution. Creditors typically will not allow you to balance transfer a debt via a balance transfer promotion that they or one of their subsidiaries issue.
What is the catch with zero percent financing?
Zero percent financing can be a great way to save money on a car loan, but it is often only available to those with very high credit scores. Also, even if you do qualify, the dealer still needs to ensure that it will make a profit on the sale of the car, so it is unlikely that you’ll get any further cash incentives beyond the 0% interest rate.
