Most credit cards come with the option of a cash advance. A cash advance allows you to use your credit card as a means of pulling cash from your available credit. You can pull the cash from an ATM or have it transferred directly to your bank account. Just like anything else you put on your credit card, a cash advance must be paid back. While a cash advance sounds convenient, it can be costly. Check out 5 things to know about cash advances before taking one. It’s important to know what you’re working with.
#1 Cash advances usually come with a different interest rate
Since cash advances are convenient, naturally they will cost you more to use. Cash advances usually come with an interest rate that is higher than your standard purchase interest rate. Because the money is being pulled as cash, instead of used for a direct purchase, you will pay more for borrowing the cash. It’s also important to keep in mind that cash advances are usually excluded from any interest rate promotions you may be offered.
#2 Cash advances come with fees
In addition to a higher interest rate, there are fees associated with taking cash advances from your credit card. Typically, the fee is a flat rate or a percentage of the amount of cash you pull, whichever amount is greater. The cash advance fee is pretty standard and rarely waived. If you plan on taking your cash advance through an ATM, you may be charged a fee for pulling directly from an ATM.
#3 Cash advances come with their own limit
You may or may not have noticed this on your credit card company’s website, but often times lenders will give two different limits. One limit will be on the amount you can spend on purchases. The other limit will be how much you can pull for cash advances.
This is important to keep an eye out for. Usually the cash advance limit is much smaller than your overall credit limit for purchases. Don’t make plans to leverage a cash advance without first understanding how much you are allowed to take. Also, remember that the more you pull when taking a cash advance, the more expensive it may be.
#4 Cash advances don’t hurt your credit score
If you are worried about a cash advance negatively impacting your credit score, don’t worry, it won’t. Cash advances don’t have a direct impact to your credit score. However, just like any debt, if you carry a high balance and don’t pay the minimum (at least), you could negatively impact your credit score.
#5 Cash advances should be a last resort
A cash advance is certainly convenient, but just because it’s easy to access doesn’t mean you should take advantage. A cash advance should be a last resort – because of how expensive it is. If you don’t plan on paying the cash back right away, or you plan to take out a lot of cash, it’s going to cost you. Obviously, if you are in a true emergency situation and need cash immediately, this option is available to you. Just remember it should be used in case of emergencies only, and when no other means of getting cash is available.
Related: 5 Costly Credit Card Mistakes
Cash advances can be an easy alternative to getting cash quick, but you will have to pay for it! Have you ever taken a cash advance? Was it for a true emergency? Share your experiences and tips with cash advances by posting a comment below!
