How to Calculate the True Cost of a Cash Advance

You know the feeling. You’re all set to make it to payday. And then your car starts crying out for gas. Or some other fun, unexpected expense 🤪

If you're in need of quick cash to cover an unexpected expense, a cash advance can be a solid alternative to overdraft fees or a shady payday loan. This is because, generally, payday loans can charge much higher interest than cash advances.

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FYI, Cleo’s cash advance has 0% interest. So if you get $250, you just pay back $250*.

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Some states (hey, Texas) allow payday loan companies to charge more than 600% in interest. In contrast, you can find cash advances that come with 0% interest (hey, Cleo).

However, not all cash advances have 0% interest. And some charge other fees, like late fees or membership fees, in order to access the advance.  Before you apply for a cash advance, it's important to understand the true cost.

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What is a Cash Advance?

A cash advance is a way of getting quick cash that’s calculated against your income or credit limit, depending on where you get it from.

You can get a cash advance at an ATM, through a convenience check, or through online services like cash advance apps.

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How to Calculate the True Cost of a Cash Advance

To calculate the true cost of a cash advance, you'll want to consider the following things:

• Does the cash advance come with a cash advance fee? For example, if you get $500 and the cash advance fee is 5%, you’ll pay $25 in fees.

• Does the cash advance charge interest? If the cash advance comes with interest, you can calculate the total interest charges by multiplying the cash advance amount by the interest rate and the length of the repayment term.                                                                                                                                                               Ok. That was a very wordy sentence. Here’s an example. If you get $500 at an interest rate of 20% for a repayment term of one month, you will pay $100 in interest charges.

• Is there an ATM fee? If you’re getting your cash advance through an ATM, check the ATM fee and add it to the total cost.

• Is there a late fee? This is one to watch out for wherever you get your cash advance from. Depending on the repayment terms, if you don't repay the advance on time, you might face late fees. You can calculate the late fee as a percentage of the cash advance amount or as a flat fee.

• Is there a membership or access fee? You can find plenty of cash advance apps that charge 0% interest, with no cash advance fee and no late fee. But there may be an initial membership fee to access the cash advance service. As well as this, some apps offer the option of accessing your cash advance sooner, for an additional small fee (this is usually less than $5. Cleo’s is $3.99).

Add up all of the fees, interest charges, and late fees - that’s the total cost.

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Tips for Reducing the Cost of a Cash Advance

Now you know where cash advance fees come in, you can use that knowledge to avoid paying the most.

• Shop around: find the best cash advance for you, depending on factors like the amount you get and the total cost. Check out our article on the best cash advance apps of 2023 for plenty of cash advance options with 0% interest.
• Get only what you need: one benefit of cash advance apps is that they often calculate the amount you’re eligible for based on your income. This means you’re more likely to be able to pay it back. But if you qualify for more than you need, resist the urge to take it all.
• Repay the advance quickly: this will minimize interest charges (if your cash advance comes with them), and/or avoid late fees. Cleo doesn’t charge any interest, and you choose the repayment date that works best for you.

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How to get a Cash Advance with Cleo

A Cleo cash advance comes with 0% interest.

To access Cleo’s cash advance feature, you’ll need to decide if Cleo Plus* is right for you. On top of a ton of free budgeting features, Cleo Plus* gives you access to the cash advance service, and credit score coaching.

If you’re someone who overdrafts regularly, you might actually save money with a Cleo Plus* membership.

Here’s the math: statistically speaking, if you overdraft once in a month you’ll overdraft two more times. With overdraft fees of up to $35, this can add up to $100 dollars a month. That’s $1,200 in overdraft fees over a whole year.

Cleo Plus* is $71.88 for a year. If the Cleo cash advance helps you avoid overdrafting twice, you’ve already made your money back.

If you’re eligible, and you want your money sooner, you can pay to access your advance on the same day for an express fee.

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It’s as simple as this:

1. Download the app for free (at this point, you get access to all of Cleo’s free budgeting and saving features)
2. Connect Cleo to your main bank account (just so we can calculate your eligibility)
3. Find out if you’re eligible
4. Decide if signing up for Cleo Plus* is right for you
5. Confirm your details so we know you’re human
6. Choose when you want the money
7. Choose your repayment terms

That’s it.

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There’s only one thing left to do…

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Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference. Big love. Cleo 💙

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_{*The Cleo Plus subscription offers saving goals, hacks, challenges, APY on savings, credit score insights, and access to cash advances if eligible.}

_{**Subject to eligibility. Amounts range from $20-$250, and $20-$100 for first-time users. Amounts subject to change. Same day transfers subject to express fees.}