If you need cash in a hurry, you may be tempted to get a cash advance on your credit card. But that can end up costing you a lot of money in the long run. Instead, consider other options that can save you a lot of money on interest rates and finance charges.
Cash advance may seem like an easy way to get cash quickly, but it can cost a lot of money with interest and fees. Before you get a cash advance, familiarize yourself with the terms and conditions so you don’t get an unpleasant surprise. And what’s even better is to avoid cash advances altogether.
What is a Credit Card Cash Advance ?
A cash advance is a cash loan provided by a credit card issuer. This means that you basically charge your credit card account in cash, but you may incur large cash advance fees. Over time, you may end up paying more, not to mention the interest rates. Cash advances can come in the form of using “convenience checks” that are attached to your credit card at an ATM, or through other transactions, such as using your credit card to pay money orders and money transfers.
How does prepaid cash work?
“Let’s say you go to a bank or ATM and use your credit card to withdraw money. The process may look like a debit card withdrawal, but you’re actually getting a cash advance with your credit card. “That’s why we’re here,” says Jason Gohan, senior vice president of consumer card products at Bank of America. “Unlike a debit card withdrawal, as a cash advance, your credit card company essentially lends you money and credits it to your account. Typically, cash advances carry a transaction fee and have a higher annual percentage rate (APR). In addition, there is usually a limit to the amount of cash you can get in advance.”
But using a card to get cash is not the only form of cash advance. Some credit card companies send customers checks in the mail. These “convenience store checks,” as they are known, are tied to your account. If you deposit them, the transaction will be treated as a form of cashiering, and you will receive a cashiering fee per year. There may also be a transaction fee.
How to get cash advances with a credit card
The cardholder gets a cash advance by visiting an ATM, bank, or other financial institution or by requesting a check from the card company. In fact, some card issuers periodically mail checks to encourage consumers to receive cash advances from their cards. Check your credit card terms and conditions to see what your cash advance limit is and what your cash advance credit is.
If the card company is requesting a cash advance from you, what could be wrong? You probably already know the general answer to that question. But the devil is in the details. Before you take advantage of a cash advance opportunity, you should fully understand the position you’re in.
Cash advance terms and fees.
A cash advance is an easy way to get cash quickly, but it often costs more than any benefit. Before you get a cash advance, you should read the Terms and Conditions to be aware of the high fees you may incur
- Cash back interest rate: Cash back applies a separate interest rate than purchases or balance transfers, and often offers a higher interest rate. For example, the Citi® Double Cash card charges an introductory 0% APR for 18 months on balance transfers. After that, the fluctuating interest rate will be 16.24% to 26.24%, while the fluctuating interest rate for cash advances will be 27.49%.
- Cash Advance Fee: Card issuers often charge a cash advance fee, which is usually 3% or 5% of the total amount of each cash advance you request. For example, a $250 cash advance with a 5% fee would cost $12.50.
- Cash Withdrawal or Bank Fees: If you use an ATM to withdraw cash or visit a bank, you may expect a cash service fee.
- There is no grace period. Cash advances are not subject to grace periods. This means that interest will accrue from the day you withdraw the cash advance. This is different from when you make a purchase with a card and the issuer provides a grace period of at least 21 days, which does not accrue interest if you top up before the expiration date.
- Individual credit limits include: Cash advances often have a separate credit limit that is part of the total credit limit. You may only be able to withdraw a few hundred dollars.
Can I avoid cash service fees?
One of the best ways to avoid cash advance fees is to not use them at all. Before you make a cash advance, consider whether you can use your debit card instead, or whether you have the option of exchanging your purchase with a credit card from a retailer. If your income is low, you can get an interest-free loan for up to $2,000. Loans can be used for necessities such as refrigerators, washing machines, and car repairs.
If you can’t avoid a cash advance, you can reduce the amount you withdraw to minimize the interest you pay (and if it’s calculated as a cash advance fee). Since the interest accrues from the time you receive the cash, paying off the balance quickly will also help you reduce the overall cost.
Choosing a credit card with a low savings amount is another way to minimize interest costs. For example, at the time of creation, the highest cash advance rate (not including interest-free credit cards) in our database was 25.99%. In contrast, the lowest cash advance rate in our database was 8.30%.
How can cash advance affect your credit?
Using cash advances will increase your credit card debt. This extra burden can hurt your credit rating if your credit card usage increases (the amount of credit available). Generally, you should use less than 30% of your total available credit to keep your credit utilization low.
If having high-interest debt makes it difficult to pay your bills, you may find it difficult to pay on time. And if you fall behind, your credit could suffer. That’s because payment history is one of the most important factors affecting your credit rating.
In addition to the possibility of owing too much debt and damaging your credit, you should try to avoid getting cash advances because of high interest rates and fees.
This is a good alternative to a cash advance.
Borrow from family or friends. You can ask to borrow from family or friends. Asking can be inconvenient, but it may be the most economical way to get the cash you need. Make sure you have a repayment plan to maintain a good relationship.
Get a personal loan: Personal loans usually offer better terms than cash advances, and if you have good credit, you can use more cash. As for personal loans, you can repay the loan at a fixed rate, which is usually much lower than the annual fees charged by card-issuing companies.
Use emergency funds: Before you think about investing or saving for an expensive item, you should create an emergency fund. There is no magic amount, but many financial experts say you should earn about three months to cover unexpected expenses.