Before getting a credit card cash advance, read the fine print
SAN JOSE, California, November 9, 2021 / PRNewswire / – Being able to use your credit card to get cash can seem pretty handy. And this can be especially the case if you have an upcoming expense that cannot be paid for with a card.
However, it is important to understand that credit card cash advances work differently from regular purchases on a credit card. credit card. In fact, a cash advance can be one of the more expensive ways to access emergency funds.
How does a credit card cash advance work? And are there any situations where a cash advance could make financial sense? Let’s take a look at their potential risks and benefits below, from myFICO.
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What is a credit card cash advance?
Let’s say you come home from work one day and notice that your air conditioning isn’t working. You call a local repairer who quickly identifies the problem as a relatively minor issue that can be resolved to $ 300. You are relieved that you do not have to replace your entire air conditioning unit. But to your dismay, the repairman informs you that he only accepts payments in cash or by check.
You do not currently have $ 300 available on your checking account, and it will take you three more days before you receive your next paycheck. You planned to use your credit card to pay for the repair because your current balance is well below your credit limit. But unlike most debit cards, credit cards do not provide access to cash. Or are they doing it?
You call your credit card company, explain the situation, and the customer service representative tells you he has good news. Your credit card has a “convenient” cash advance feature. You can simply go to your bank or a supported ATM near you and use your credit card to withdraw cash. It’s that simple!
It turns out that many credit cards to do allow you to borrow cash and have no effect on your credit limit this way. But the price you pay for that added convenience can be a tough pill to swallow. Let’s take a look at some of the fine print that you’ll need to pay attention to before you decide to take out a credit card cash advance.
What Fine Print Cash Advance Should You Read?
A credit card cash advance will almost always be more expensive than using your card to spend the same amount in-store or online. One of the reasons for this is that cash advances usually start earning interest immediately while interest charges are generally not reflected in purchase transactions until after a grace period.
But exactly How many you pay for a cash advance by credit card varies depending on the fine print of the specific credit card you own. Here are the top three factors that can affect the cost of cash advances:
- Interest rate (APR): In most cases, the APR of a cash advance will be higher than the standard APR of your card.
- Cash advance fees: Most credit card issuers charge transaction fees on cash advances. These fees can be a percentage of the amount advanced, often ranging from 3% to 5%. Or it can be a package deal, often between $ 5–$ 10. Yet other cards use a combination of these two fee structures. For example, cardholders may be billed for the bigger by 5% or $ 10 for their cash advance transactions.
- Third-party ATM or bank fees: In addition to the fees from your card company, you can expect the third-party bank or ATM provider to charge a transaction fee as well. You can look at the off-network ATM fees of a few banks and online ATM providers to find the cheapest option.
Cash advance fees and third party fees are easier to calculate because they are only billed once. But the amount you pay in interest on the money you borrow will depend on how long it takes you to pay off the balance. The sooner you are able to repay your advance, the less interest charges you will pay.
The last piece of fine print you’ll want to look at is your Credit limit because your cash advance line may be less than your overall credit limit. If you only need enough money to buy produce at a local farmer’s market, the lower limit shouldn’t be a problem. But if you’re trying, for example, to pay for a car repair, you’ll want to make sure that you can withdraw enough money to cover the full expense.
Are there better ways to borrow money?
A credit card cash advance can actually be a more cost effective emergency cash option than payday loans, which often charge an upfront fee that equivalent to APRs of almost 400%. A cash advance may also be more accessible to people with just damaged credit than a personal loan application because it does not require a new credit check.
However, there may be other ways to borrow money that are more flexible and less expensive. An example is This program that allows eligible cardholders to borrow against their credit limit at a inferior interest rate than the card’s standard APR for purchases. These loans do not require a new credit check, are offered free of charge and the money is deposited directly into your bank account. However, the minimum loan amount is quite high at $ 500.
Want to use a peer-to-peer payment app to send money to a friend or entrepreneur, but don’t have enough money in your bank account to cover the transaction? With this product, you can use your credit card to make Venmo or PayPal payments without having to pay standard credit card fees. A linked bank account is not required and transactions are treated as purchases rather than cash advances.
Finally, you can consider using a third-party payment service. With Plastic, for example, you can pay pretty much any expense with a credit card (even things like utilities or rent) and your recipients are paid the way they prefer (ACH, paper check, or wire transfer ). Plastiq’s 2.85% fee is lower than most credit card cash advance fees. And since their transactions are generally treated as purchases, you should receive the standard APR and grace period for your card.
The bottom line
A credit card cash advance can be an expensive way to borrow money. Despite this, a cash advance might be worth considering if it would help you avoid predatory borrowing options like payday loans and if you are confident that you can repay the amount borrowed quickly.
But most cardholders will have better options available to them to use their credit card to cover expenses in cash only. Still, it’s important to note that even the best of these options will still involve paying interest if your card statement balance is not paid in full by the due date.
Ultimately, the best way to avoid interest and fees on expenses that require cash payments is to build up your reserves in your bank account. Check out our guide to setting up an emergency fund for tips to help you reach your savings goals faster.
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