Credit Card Cash Advances: The Good, the Bad and the Ugly
First, the good news: cash advances are a smart tool to have in your back pocket in an emergency situation. Now, the not-so-good news: cash advances come with upfront fees and high interest rates.
For example, you find yourself stranded out of town and in need of car repairs. Your short on cash and the repair shop doesn’t accept credit cards. What do you do?
If you are a credit card holder and you have access to an ATM, you may be able to use your credit card to get quick cash. Although the fees and the high interest rate are not in your favor, you recognize that the situation needs to be resolved.
In this instance, it is easy to see the advantages of using a credit card for a cash advance. However, many consumers have overused and abused credit card cash advances and have therefore found themselves in a mountain of unexpected credit card debt.
What you Need to Know:
- Cash advances have no grace period. In other words, you begin to accrue interest charges the moment you withdraw the money.
- The interest rate charged by credit card companies for cash advances is often much higher than the card holder’s interest rate for purchases. In fact, many credit card companies charge as much as 20 to 25 percent for a cash advance. Compare that with the typical 12 to 15 percent charged by most credit card companies for purchases and you can easily see how quickly the cost of cash advances can add up.
- Fees for cash advances can be outrageous, to say the least. Fees are generally calculated on a percentage of the cash advance taken (usually one to four percent), or are simply charged as a flat fee. Flat fees are not based on the amount of the cash advance and therefore remain consistent from one cash advance to the next.
It is also not uncommon for credit card companies to charge consumers both a flat fee, as well as a percentage of the cash advance taken. For example, the credit card company may choose to charge a flat fee of $10 for every cash advance, and then also charge a percentage of the cash advance itself.
- If you take a cash advance through an ATM, be prepared to also pay a fee charged by the financial institution that owns the ATM.
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