2 times a credit card cash advance makes sense


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A cash advance with a credit card is expensive. If you use your credit card to withdraw money from an ATM, you can usually expect to pay:

  • One-time cash advance fee, which is typically 3% of the amount withdrawn
  • ATM fees (often charged if your card is issued by a different bank than the ATM)
  • An interest rate much higher than the purchase APR. Worse yet, most cash advance transactions don’t have a grace period, which means interest starts accruing immediately.

For example, the BankAmericard Cash Rewards credit card charges a cash advance fee of eother $ 10 Where 3% of the amount of each transaction, whichever is greater. He then charges an interest rate of 25.24% on cash advances, against a range of 13.24% to 23.24% on purchases.

If you borrow $ 300 for 15 days, you could end up paying around:

  • $ 10 for cash advance fees
  • $ 4.50 ATM fee (based on average)
  • $ 3 interest for 15 days
  • $ 17.50 total borrow $ 300 for 15 days.

While $ 17.50 sounds expensive, it’s actually a better deal than these two alternatives.

1. Using a bank overdraft

Overdraft fees in banks are even more expensive. The average overdraft fee is $ 34, and it’s typically billed per incident. AT

Bank of America
, you would pay $ 35 per transaction (up to four per day). After five days, you will be charged an additional extended overdraft fee of $ 35.

If you borrowed $ 300 for 15 days using a standard overdraft at Bank of America, you would end up paying $ 70 in total. In this example, using the cash advance feature of your credit card would be cheaper than using the overdraft feature of a regular checking account.

2. Visit a payday lender

Payday lenders can be even more expensive. According to the CFPB, the typical payday lender charges between $ 10 and $ 30 for every $ 100 borrowed. The typical term of a payday loan is 15 days. If you borrowed $ 300 for 15 days from a payday lender, you would pay between $ 30 and $ 90 in total.

Ironically, payday lenders can be cheaper than overdrafts in some cases. But using a cash advance on a credit card is still the cheapest option.

How to find the cheapest credit card with cash advance

If you think you might need a short term loan in the future, it’s best to shop around and find the cheapest credit card before the emergency strikes. Some credit unions actually offer credit cards that don’t charge a cash advance fee. MagnifyMoney (where I work) recently did a market research and found 20 credit cards from credit unions that don’t charge a cash advance fee.

The best credit union on the list is PenFed. Not only will you not be charged a cash advance fee, but the interest rates on cash advances are much lower than those offered by traditional banks. For example, the PenFed

Promise
the credit card has a cash advance APR range of 10.24% to 17.99%. To borrow $ 300 for 15 days from PenFed, the highest fees would be the ATM fees.

If a short term loan becomes a long term loan

The problem with payday loans is that people tend to renew the loan often. If you decide to renew the $ 300 loan in this example for an additional 15 days, you will end up paying $ 30 to $ 90 in additional fees. The other advantage of a cash advance is that you won’t be charged any additional fees in the future, as long as you make your payments on time each month. Interest would continue to accrue on the APR of the cash advance, but no other fees would be charged.

An emergency fund is always the best

Anytime you need to borrow money for a short period of time, it will cost you dearly. A credit card cash advance, especially from a credit union, can be a much better deal than payday lenders and short- and long-term overdraft fees. However, the best deal is to have the discipline to build an emergency fund of at least six months.

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