A cash advance is the so-called short-term and the most expensive loan taken against your credit card line. Every borrower has to know this. Many or all of the financial products often purchased by borrowers from different countries presented here are provided by international partners working with MFIs and banking institutions. This can affect which products are discussed. Often, they appear on the page of a particular financial website of the financial organization.
However, this does not affect our estimates. Your quick money from MFOs allows you to use your credit card to get a short-term cash loan at a bank or ATM which is a more convenient way to get money. Unlike withdrawing money from a bank account, the advance must be returned just like anything you put on your credit card. Think of it as using your credit card to “buy” cash instead of goods or services. It is convenient but quite expensive.
How Does Cash Advance Work?
If borrowers use a credit card for making their daily expenses, then they may face a specific situation. Some people look to credit card cash advances when they need to get paper money but there isn’t enough of it in their bank account.
Keep in mind that most financial companies do not allow the total line of credit to be used as a cash advance. For most clients, some cash advances are limited to a few hundred dollars but not at MoneyZap because you can get up to 2000 dollars there. It leads to the fact that you cannot count on your credit card to provide you with a sufficient sum of money for the particular event.
Why Are Cash Advances Expensive?
Getting a cash advance is easy but one of the most expensive ways to get some money. This is because cash loans can be accompanied by various costs:
- Cash advance payment. They are imposed by your card issuer. Some cards charge a flat fee for a cash advance that is $ 5 or $ 10. Others charge a percentage of the amount advanced, often up to 5%. Sometimes it is a percentage with a minimum dollar amount, for example, 3% or $ 10 whichever is greater.
- ATM or bank charges. They are set by the financial institution that processes the transaction of the owner of the ATM or the bank from which you receive your advance.
- This can be costly for several main reasons. First, the interest rate charged by a credit card on cash advances is often much higher than the rate charged on purchases. Second, interest on cash advances usually begins to accrue immediately. There is no grace period for purchases.
Considering the costs associated with obtaining a cash advance, you may be in dire financial straits if you are considering it because there are not enough funds in your bank account. Cash advances should only be used as a last resort. If you find yourself relying on them, it might be time to make some changes or seek help, for example through a credit counseling agency or financial expert. If you are facing a monetary crisis and are unsure of where to go, then be ready to consider additional options.
Cash Advance Alternatives
None of these can be perfect, but they can end up costing less than a cash advance:
- Personal loan. It will be expensive if your credit is small but the interest and terms will be more beneficial than a cash advance.
- Promotional offers from your card issuer. In recent years, credit card issuers have introduced cheaper ways to use your line of credit including the ability to substantially convert your existing loan into an installment loan without requiring you to apply for a new loan. You will still be charged interest but at a fairly reasonable rate.
- Borrowing money from friends or family. It can be inconvenient but the savings are worth it.
- Exceeding your checking account. Instead of taking a cash advance from an ATM, consider overspending your checking account with a debit card. You will face commissions but you do not have to worry about paying interest.
If You Need Extra Money
In this case, it is better to get a credit card instead of a cash advance. Until you use it, you do not pay either for servicing the card or interest. Therefore, you might have a certain amount for unforeseen expenses. For example, if the card has been in your wallet for a couple of years, and you only paid with it in the store in the third year, then the bank will not take money for service in the past two years. However, in subsequent years, the card may cost you nothing if you received it at the personal offer of the bank.
If Small Amounts Are Often Needed
It is better to use a credit card instead of a cash advance. With it, you do not need to worry every time whether they will give a loan as you already have it. Your funds will be free even if you pay by card every day but neatly fit into the interest-free period.
If You Need a Purchase By Bank Transfer
In this situation, your choice depends on the amount and on the period in which you plan to repay the loan. If you need a large amount for a relatively long time (more than 50 days), then it is better to take a consumer loan instead of a cash advance. The approved amount will be credited to your card. Thus, you can pay for purchases without commissions. If the amount fits into the credit card limit (and you know that you can pay off the debt before the end of the interest-free period), then it is better to pay for the purchase with a card. This way you actually use the bank’s money for free.
How to Reduce Cash Advance Fee?
Accept Transaction Fee
Some transaction fees represent a percentage of the total advance you purchase. In this case, you can limit the commission by withdrawing exactly the amount you need. Other transaction fees can be a flat rate or a combination of a flat rate and a percentage of the transaction in advance. In this case, if you take all the cash you need at the same time (instead of carrying out several small transactions) you will pay a flat fee only once.
Find a Credit Card With More Suitable Conditions
If you are planning to receive a cash advance, you may need a card with a lower cash advance fee and a more competitive interest rate. Still, these factors can vary depending on the issuer.
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