What is a cash advance and do I need to get one?
For urgent needs, cash advances are useful, but they come at a price. For simplicity, cash advance allows you to get a short-term money loan from an ATM or bank using only your credit card. The main difference between a cash advance and a simple cash withdrawal is that you have to pay it back, much like anything you buy using just your credit card. So basically you are “buying” money at the expense of interest charges and that is the main disadvantage of a cash advance.
Basic information on cash advance
Almost all credit cards in the United States offer this feature. The borrower will normally get cash or a cash equivalent up to 20% or 30% of the available credit limit on the card, essentially a short term loan.
- When opening a bank account, the initial deposits
- Overdraft protection when a credit card secures a checking or savings account
- Foreign currencies, money orders or even travelers’ checks
- Virtual currencies (like bitcoins) or gold
- Lottery tickets, casino chips and even gambling bets
- Gift cards from various stores and credit cards
As you are probably guessing already, the cash advance gives you access to unsecured funds. However, from day one the money is extended, you can pay compound interest on the advance plus an upfront service charge. Additionally, most credit card companies only make a portion of your revolving line of credit available as a cash advance to use.
Cash advance conditions and fees
The cost of cash advances is higher than that of normal transactions. You will be charged a cash advance fee and generally a higher interest rate than you will pay for normal credit card transactions. It is possible to charge the cash advance fee as a percentage of the cash advance or as a flat rate. For example, a fee of 5% percent of the advance or $ 10, whichever is greater, may be paid by you. To confirm the exact charges you will be paying the cash advances, check the terms of your credit card.
To be fair, cash advances are a convenient way to get cash fast, but they also come with high fees that overshadow any benefits. Always check the terms before taking out a cash advance as you fall into the loan trap and your cumulative fees could reach dangerous heights.
APR of Cash Advances: Cash advances carry a separate and sometimes higher interest rate than sales or balance transfers. For example, the Bank of America® Cash Rewards credit card has a variable APR for sales and balance transfers of 13.99% to 23.99%, but a variable APR of 25.24% for advances from funds.
Cash advance fees: A cash advance fee is also paid by your card issuer and is typically 2% or 5% of the total amount of each cash advance you request. A $loan of 300 dollars or a cash advance with a 5 percent charge, for example, would cost you $ 25. You can also expect a fee to get a cash advance, whether you use an ATM or visit a bank.
No grace period: As we already mentioned above, a grace period does not benefit cash advances. This means that from the date a cash advance is withdrawn, you will be charged interest. This is different from when you make a payment with your card because if the balance is paid in full by the due date, the lender grants a grace period of at least 21 days during which you will not pay any money. ‘interests.
Separate credit limit: There is always a separate credit limit on cash advances that is part of your total credit limit. There might be only a few hundred dollars you can withdraw.
Note that a small percentage of your total line of credit is usually your cash advance line, and interest payments start accruing immediately. Make sure you understand the fees and consider all of your options.