What is a cash advance on your credit card and how much does it cost?
Although a cash advance can be a convenient way to cover a temporary lack of cash, you should be aware of the additional costs you will incur. The cash advance interest rate is often higher than if you used your credit card to make a purchase. The interest rates offered by financial institutions on cash advance transactions can exceed 20%. This is much more than the average purchase rate which is between 15 and 17% on a credit card.
In addition to this, there is generally no interest-free period for cash advances. This means that interest is calculated from the day you make the transaction, unlike purchases which may have interest-free days where you can pay them back without paying interest. If you find a credit card offering an interest-free period on cash advances, you should check the return rate, which is the rate charged on transactions after the interest-free period; these can reach 27%.
Apart from interest charges on cash advances, you may also be charged fees for cash advances which could cost you between $2 and $10. Some card issuers may not charge you a fixed fee, but rather charge you a percentage of the total transaction amount, which can vary from 1-10%.
Sometimes, if you withdraw money from an ATM that is not part of your card network, you may also incur additional ATM fees due to the ATM being owned by another financial institution.
If you travel abroad and use your card for a cash advance, this will incur even higher cash advance fees from your bank. Additionally, the country’s ATM fees will also apply to international cash advance transactions.