Looking for a way to access quick and convenient cash without having to dip into your savings might seem like an unrealistic hope, but with a cash advance, you can do just that.
While not advised due to the high charges associated with them, cash advances are an option for when all else has been exhausted.
A credit card cash advance is way to obtain money immediately by means of making a withdrawal through your credit card. Cash advances can be made at ATM’s as well as at bank branches and through online banking.
Cash advances also carry a limit and banks will mention the amount of money you can withdraw as a cash advance in your credit card statement. This amount is usually your credit limit or an amount lower than your credit limit.
A cash advance can be made through an ATM in a manner similar to a cash withdrawal using a debit card.
When visiting a bank branch for a cash advance, you will have to hand over your credit card and the teller will provide you with the amount of money you have asked for, subject to your cash advance limit.
As stated earlier, cash advances are chargeable transactions made on your credit card. Like all credit purchases, a cash advance also attracts interest. In the case of purchases charged to your credit card, your outstanding amount will attract interest only if the full amount has not been paid by the due date. However, unlike other credit purchases, the cash advance will begin accruing interest from the day the cash advance is made.
Cash advances have a separate upfront charge, which will reflect in the credit card statement. The fee differs from bank to bank, but the minimum is usually 2.5% of the amount being withdrawn.
This fee is chargeable over and above your regular credit card interest charges, which could result in you paying a high sum if you already have an outstanding unpaid balance on your credit card.
Cash advances attract a higher interest rate as banks view them as high risk. Customers who make cash advance transactions may be unable to repay the amount loaned to them through the cash advance, resulting in the bank having to write off that amount. Unlike credit card transactions, banks are unable to recover the amount they loan you as a cash advance. This makes them riskier than loans, since all loans require a collateral, which the bank can claim in case the customer does not return the amount, while cash advances do not.
A cash advance might not be a good financial decision, but if it’s a last resort, here are some points you should keep in mind before making that withdrawal:
If you’re only making the minimum payment on your credit card for a particular bill cycle and if you’ve made a cash advance, the payment will go towards your outstanding balance and not towards your cash advance. This is because banks choose to pay off amounts with a lower interest charge by default. Since your cash advance attracts a higher interest right from the day the advance is made, this transaction would be a much higher amount. If this amount is carried forward to your next billing cycle, you would be paying a very high interest rate. To avoid such a situation, it is advisable to pay your minimum balance and the amount of the cash advance.
Each bank has its own terms and conditions regarding cash advances and the interest applicable on them. In some cases, the terms differ for different types of credit cards as well. To avoid being charged extra, you should always go through the terms and conditions for your specific credit card on the bank’s website or in the material sent along with your card.
Cash advances accrue interest from the day the advance is made. In other words, there is no grace or interest-free period when it comes to cash advances. To avoid paying a hefty fee in terms of interest on this transaction, consider paying off the cash advance as soon as possible if you have no other transactions on your credit card.
While a cash advance is generally perceived to be a withdrawal of funds from your credit limit, banks also consider other transactions charged to your credit card as cash advances and levy high interest charges on these transactions. Avoid paying for these on your credit card to prevent being charged a higher interest rate:
A number of banks offer purchase protection of up to 6 months on purchases made through a credit card. However, this privilege does not extend to purchases made with cash advances.
A cash advance is something to be avoided due to the charges and risks associated with them. If, however, you have exhausted all other options, keep in mind the tips provided above and try to keep cash advances to a minimum to ensure you have a healthy line of credit.