Have you ever been in a situation where you needed cash quickly? Getting a cash advance on your credit card could seem like a simple and quick fix. However, take note that cash advances can be very costly before you use the ATM.
So, why are cash advances so costly? Let’s break down the factors that contribute to their high price tag:
1. Transaction Fees:
- Ouch! You’ll typically pay a transaction fee of 3-5% of the advance amount. That means if you need $300, you’ll pay an additional $9-15 just for the privilege of accessing your own money.
2. Sky-High Interest Rates:
- Brace yourself. Cash advances often come with significantly higher APRs than regular purchases. While your regular APR might be around 16%, the average cash advance APR can reach a whopping 24.80%. This means interest starts accruing the moment you take out the advance, adding up quickly.
3. No Grace Period:
- Unlike regular purchases, cash advances don’t offer a grace period. Interest starts accruing immediately, adding to the cost.
4. Potential for Debt Spiral:
- Cash advances can be a slippery slope. The high interest rates and fees can make it difficult to repay the advance, leading to a cycle of debt.
So, should you avoid cash advances altogether?
Ideally, yes. But if you find yourself in a truly urgent situation, here are some tips to minimize the damage:
1 Borrow the Minimum:
- Only take out what you absolutely need. The smaller the amount, the less interest and fees you’ll pay.
2. Repay ASAP:
- Make it your mission to pay off the advance as quickly as possible. Every extra payment helps reduce the interest burden.
3. Consider Alternatives:
- Explore other options before resorting to a cash advance. Can you ask for an extension on a bill? Borrow from a friend or family member? Explore a personal loan? These alternatives might offer lower interest rates and more flexible terms.
4. Be Aware of Fees:
- Do your research and understand all the fees associated with cash advances. This includes transaction fees, ATM fees, and potential over-the-limit fees.
Remember, cash advances should be a last resort. If you do use one, be smart about it and focus on paying it off quickly to minimize the cost.
Here’s a quick recap of the key takeaways:
- Cash advances are expensive due to high interest rates, transaction fees, and the lack of a grace period.
- Only use cash advances as a last resort.
- Borrow the minimum amount and repay it as quickly as possible.
- Explore alternative options before resorting to a cash advance.
By following these tips, you can minimize the cost of a cash advance and avoid falling into a debt trap.
The cost of a cash advance
As previously mentioned, cash advances have a variety of terms and fees. However, you might be curious about the total cost of the transaction. Heres an example:
Cash advance terms and fees
Although cash advances are a quick and simple way to get money, they frequently have high fees that outweigh any advantages. Examine the terms before taking out a cash advance so you are aware of the hefty fees you will probably have to pay.
- APR for cash advances: Compared to purchases or balance transfers, cash advances have a different, frequently higher, interest rate. As an illustration, the Citi Double Cash Card (C2%AE) offers a 200 percent annual percentage rate on balance transfers for the month of 2018. After that, the variable APR will be 19. 24% – 29. 24%, but a 29. 99% variable APR for cash advances. (see rates and fees. ).
- Cash advance fee: The credit card issuer frequently assesses a cash advance fee, usually equivalent to 3% or 5% of the total amount of each cash advance you request. In this case, for instance, a $250% cash advance with a 5% fee will cost you $12. 50.
- Fee from an ATM or bank: You should anticipate paying a fee to obtain a cash advance when using an ATM or going to a bank.
- No grace period: There is no benefit to cash advances from a grace period. This implies that interest will be assessed to you from the moment you take out a cash advance. That is not the case when you use your card to make a purchase and the issuer grants you a grace period of at least 21 days during which you can pay off your balance in full and avoid paying interest if you pay it off by the due date.
- distinct credit limit: A portion of your total credit limit is frequently set aside for cash advances. It’s possible that you can withdraw just a few hundred dollars.
How a Credit Card Cash Advance Works (and why you shouldn’t do one)
FAQ
Why are cash advances expensive?
Why am I getting charged cash advance fee?
What is the average cash advance fee?
How much does a cash advance cost?
Getting a cash advance is easy, but it’s one the costliest ways to get your hands on some cash. This is because cash advances can come with a variety of expenses: Cash advance fees. These are imposed by your card issuer. Some cards charge a flat fee per cash advance, say $5 or $10.
Are cash advances a good idea?
Cash advances generally feature steep interest rates and fees, but they are attractive to borrowers because they also feature fast approval and quick funding. A cash advance is a type of short-term loan, often issued by a credit card company, and usually involving high-interest rates and fees.
Are cash advances expensive?
The fee and interest you pay for a cash advance is typically directly related to the size of your withdrawal and the length of your repayment, so cash advances are considered to be expensive and when used, should be considered a short-term solution.
What are credit card cash advance fees?
Credit card cash advance fees include both up-front fees and interest. Up-front fees are usually a flat fee or a percentage of the cash advance, whichever amount is greater. This fee posts to your account the same day as the cash advance transaction. Common up-front flat fees range from $5 to $12 or 3% to 8%.