Although a credit card cash advance may appear like a quick way to get money, there are costs and hazards to take into account.
A cash advance on your credit card is a kind of withdrawal from your account. In essence, you’re taking out a loan against your credit card to make some cash. Nevertheless, there are fees associated with obtaining a credit card cash advance and, in certain situations, maximum withdrawal amounts.
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How do advances of cash operate?
Let’s say you use your credit card to withdraw cash from an ATM or your bank. According to Bank of America’s Jason Gaughan, SVP of Consumer Card Products, “although the process may seem similar to withdrawing money with a debit card, what you’re really doing is taking a cash advance on your credit card.” “With a cash advance, your credit card company is essentially lending you money and charging your account, as opposed to a debit card withdrawal, in which you’re accessing your own funds. You’ll probably have to pay for it because cash advances often have higher annual percentage rates (APRs) and transaction fees. Furthermore, the amount of money you can typically receive an advance on
There are other ways to get cash advances besides using your card to make purchases. Checks are mailed to customers by certain credit card companies. They are referred to as “convenience checks” and are associated with your account. The transaction is regarded as a cash advance if you deposit them, and you will be charged the cash advance APR. Additionally, transaction fees could apply.
When a cash advance should be used
In an emergency, cash advances can be a valuable source of funding. If you are short on cash and unable to charge an expense, you may use a cash advance—even though you shouldn’t intend to use them frequently. But always remember to weigh all of your options in light of the associated costs.
Why do cash advances cost so much?
It’s a good idea to review the terms and fees in your credit card agreement to make sure you understand them. Here are some expenses to think about:
If you take out a credit card cash advance, there will be a transaction fee.
Cash advances frequently have an annual percentage rate (APR) higher than credit card purchases.
Cash advances frequently have no grace period and start charging interest as soon as the money is withdrawn.
Means of reducing cash advance costs
Recognize transaction costs
If the transaction fee is a percentage of the total advance, you can reduce it by only making the necessary withdrawals. Additional transaction fees could be in the form of a percentage of the transaction or a flat rate combined with other fees. In this instance, you will only have to pay the flat fee once if you take out all the cash you anticipate needing at once as opposed to making several smaller transactions.
Make quick payments
A cash advance transaction typically results in interest being charged right away, unlike regular credit card purchases that have a grace period between the time the purchase is made and the date the payment is due, after which interest is charged. That means that in order to save money over time, it is imperative that you pay back your cash advance on time.
Look for a credit card with better conditions.
Since these can differ by issuer, if you intend to get a cash advance, you might want to look for a card with less expensive cash advance fees and a better interest rate.
