The cost of a cash advance
Most credit card users think that a cash advance on their credit card is going to cost them the same as a purchase on their credit card. However, people who have this theory in mind are wrong. Many consumers who use the cash advance feature on their credit card are not aware of the fact that cash advances cost more money than an ordinary purchase. Sure, the cash advance feature is nice to have in an emergency, but sometimes you have to ask your self if the cost is worth it in the end. Every time you withdraw cash out of an ATM or from a bank with your credit card extra fees are going to kick in. These fees are not something that you would normally see on your credit card statement because they do not apply to regular transactions.
One of the biggest fees that you are going to face with a cash advance is going to be the fee that you are charged for the cash advance. This fee is going to vary depending on the bank that issues your credit card and what their terms and conditions are for a cash advance. Some banks will charge you a percentage based on the amount of money that you withdraw. This percentage is usually somewhere between 2 to 4 percent, but will vary by the bank that issued your card. For example, if you withdraw $200 and your financial institution charges you a 4% fee, it will cost you $8.00 to withdraw the $200 from a bank or an ATM. Other financial institutions will charge a flat fee for a cash advance, which can range anywhere from $10 or up, depending on your financial institution. For example, if you choose to take out $300 as a cash advance and your credit card company charges you $10 fee, it will only cost you $10. This is cheaper than the 4%, which would cost you $12 for that same $300. However, the flat fees can also end up costing you more money in the end, especially if you are only withdrawing a small amount like $100 or $200. No matter what you withdraw, you will end up paying that flat fee, where as with the percentage-based system you only pay a small percent of what you are borrowing.
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Something else that financial institutions are starting to do is to combine the methods of collecting fees for cash advances. This combining method is starting to gain more popularity with the financial institutions is because it is allowing them to collect larger fees when they issue you a cash advance. How this method works is that your credit card company is going to charge you a certain percentage, which will be based on the amount of money that you withdraw, but they will also charge you a flat fee regardless of how much money you have withdrawn. For example, you are taking out a cash advance of $200. Your credit card company charges you 4% to take out a cash advance, this will result in an $8.00 fee. In addition to that, $8 your credit card company also charges you a flat fee of $10 to take out a cash advance. This ends being a total of $18 to take out a cash advance of $200. Something else that financial institutions are doing for fees with a cash advance is charging either a flat fee of around $30 or a percentage, which one they charge will depend on which is going to be the higher amount.
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Credit card cash advance:
When we are faced with a financial emergency on of the things that we tend to do is to put those extra expenses on a credit card. Many people will tell us to ignore all of those credit card offers that we get in the mail because they are just a waste of time, they are going to ruin our credit etc. However, credit cards can be a lifesaver when you are faced with unexpected expenses. The reason for this is that you can put the unexpected expense directly onto your credit card or you can use the cash advance feature that comes with your credit card. Using the cash advance feature on your credit card is a safe way to get the cash that you need for a short-term emergency. Not to mention that obtaining a cash advance through your credit card is going to be cheaper than getting a cash advance through a check-cashing company. Credit card cash advances are going to charge you about 20% to 25% interest, which are a less than the triple digits that check-cashing places charge for their cash advances. The best thing about a credit card cash advance is that you do not need to do anything to apply for them. If you own a credit card, all you have to do is read your terms and conditions to find out how much of your credit limit you can use towards a cash advance. Most credit card companies allow you to use 50 to 90% of your credit limit for a cash advance. The easiest way to determine how much money you can take out for a cash advance is to look at your monthly billing statement. To get the cash advance from your credit card you can either use an ATM machine, which is going to charge you an additional fee to access your cash. Alternatively, you can also use a check that your credit card company sends you, simply write out the check, and take it to your bank to deposit the money into your account. |
Another fee that people are sometimes surprised by is the interest rates that are charged for a cash advance. Since it is a cash advance from a credit card, everybody knows interest is going to be applied to the amount that they are borrowing, what they are not aware of is the actual interest rate being applied to the cash advance. With cash advances the interest rates that you are charged are typically higher than what you are charged for a normal purchase transaction. For most credit card issuers they charge you anywhere from 20% to 25% interest for a cash advance, whereas with a normal transaction you are only charged 15% to 17% interest. If you are lucky, you might have one of the few credit card companies that charge the same interest rate for both cash advances and purchases.
With the interest rate, another thing that you have to keep in mind when it comes to cash advances is the grace period. Most people are used to not being charged any interest on their credit card until the following month because credit card purchases have a grace period of 28 to 30 days, depending on your billing cycle. This grace period allows people to pay off their credit cards each month without incurring any interest charges. With a cash advance, there is no grace period. What this means is that as soon as you withdraw that cash advance you begin accruing interest on the amount that you have withdrawn. Therefore, even if you pay your credit card bill in full each month you will still have to pay the interest charges on your cash advance, there is no break on fees there.
How your payments are applied to your credit card is also going to affect how much your cash advance costs you in the end. The reason for this is that most credit card companies are going to require you to pay down your purchases balance on your credit card before they will allow you to start paying off your cash advances. If you carry a balance on your credit card these extra fees can really start to add up. The reason that they start to add up so quickly is that each month your cash advance remains unpaid you are getting charged interest, which is then added to the total amount due. Even if you try to send in extra money with your credit card payment, the credit card companies will not apply it to the cash advance portion of your credit card until your balance is paid off in full. If you pay off your credit card in full each month, you will not have as much to worry about because any extra money you send in will be applied towards the cash advance. The real problem is for people who keep a balance on their credit cards because they will see an increase in finance charges and in their overall interest rates.
One of the smaller fees that are associated with a cash advance from a credit card is an ATM fee. If you do decide to get a cash advance through your credit card and you use, an ATM you are going to be charged a fee from the bank that owns the ATM. How much this fee is depends on the bank that owns the ATM, but can range from $1.00 on up. The good thing about ATM fees is that they can be avoided, all you have to do is go into the bank and use a credit card check to get your cash advance instead of inserting your credit card into the ATM machine.
How much you are going to end up paying for a cash advance is going to depend on a variety of factors. The reason for this is that credit card issuers are private businesses so they are going to be setting their own standards and fees based on the current market competition, their internal guidelines, and the rules of the states that govern them. However, the fees that you are going to be charged are also going to vary based on the type of credit card that you have and your credit history. What this means is that even if you and your friend have the same credit card company, you can be paying different fees and rates.
The good news with the fees and charges that are applied to cash advances with a credit card is that they are never hidden fees. The reason for this is that credit card companies are required by law to disclose any information about fees and charges that are associated with the credit cards that they are offering you. Most often, you can find all of this information displayed on the back of the solicitation form that they first send out to you or you can find it on the back of your monthly credit card statements. Even if the fees and charges are they, still often surprise fully disclosed people because they do not take the time to read their credit card agreements carefully.
With cash advances, credit card companies state that they charge these higher fees because it costs more money to process a cash transaction than a regular credit card purchase. They also say there is a higher frequency of people defaulting on their credit card bills when they use the cash advance feature frequently.
