Cash advances are very fast and easy to get, especially if you have a credit card. However, not all credit card issuers allow cash advances.
Some people think that getting a cash advance is just making a withdrawal from an ATM or a bank, but it’s much more complicated than that. There are many things you need to know about cash advances, and in this article, we will discuss what you need to know about them and how they work.
There’s No Grace Period
If you pay off your credit card balances regularly, you don’t have to pay any interest on your balances. If you use your credit for your everyday purchases, you will find many street vendors or stores that don’t accept card payments.
We typically go for a cash advance during such times. All you have to do is visit an ATM if your card has a PIN or go to the nearest bank that offers cash advances through your card’s payment network. But you have to take note that there is no grace period, and the interest will immediately start accruing after you get your money. The sooner you pay your balance, the less interest you’ll have to pay.
There may also be additional charges to your account. They typically have a separate annual percentage rate (APR), which is often higher than your regular credit purchases. It can add up to your interest, making it more expensive.
There’s a Cash Advance Fee
The most common fee that you get charged to your balance is the cash advance fee. The bank or lender charges you when you use your credit card to obtain cash.
This fee depends on how much you take out, and they typically deduct that from the cash advance the day you get it or post it on the bill.
For example, the fee may be expressed as 2% per $10. It means you will be charged a fee of 2% of the whole amount of your cash advance.
It Affects Your Credit
Like any use of your credit card, taking out a cash advance can significantly affect your credit score. Getting a cash advance doesn’t necessarily damage your credit but being irresponsible with it does.
Typically, you can opt to include your cash advance repayment to the monthly repayment of your credit card balance. Still, most of the time, credit card issuers make another account for your cash advance that you have to pay for separately.
Not only do cash advances have no grace period, but their APR is also much higher than your typical credit card balance. In this regard, taking out a cash advance is much more expensive.
Also, you have to watch out for your credit utilization ratio. The credit utilization ratio is a huge factor in determining your credit score. If you don’t know what it is, that ratio represents how much credit you’re using over your current available balance. The higher it is, the more damage it will do to your credit score. So taking out a cash advance from your remaining credit limit will do more harm than good.
Overall, cash advances are not usually credit-friendly. But if you set aside those things, they are convenient to get when you’re struggling to pay for something in cash. They are so fast that you can just go to a nearby ATM or bank and withdraw the money.
Final Words
Cash advances are very convenient when you’re in a pinch and need cash. However, they are not so credit-friendly, so you have to be careful while getting one. They are also expensive, so you have to make sure that you can pay them back as soon as possible, or it can quickly turn into a debt trap.
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The fees and interest you have to pay for a cash advance fee make them VERY expensive. Avoid them at all costs!