Getting a Credit Card Cash Advance is not a common occurrence for most people. Generally someone would take a Credit Card Cash Advance if they needed cash in a hurry.
Keep reading below to find out how a Credit Card Cash Advance works.
Table of Contents
What is a Cash Advance on a Credit Card?
A cash advance on your credit card is an amount of cash borrowed against your credit limit. It is similar to withdrawing money from the ATM with your debit card, except the cash comes from your credit limit rather than your bank account balance.
This means you have to pay the amount borrowed back with interest. If you read the terms of your credit card carefully, you’ll notice a separate, smaller limit listed along with your credit limit. The smaller limit is your cash advance limit and it’s usually only a few hundred dollars.
How Cash Advances Work
Withdrawing cash with your credit card isn’t the same as taking out cash with your debit card. With a debit card, you withdraw money you already have in your checking account (unless you overdraw your account).
Since you only are accessing money that is yours, you do not incur any interest charges because you this is not a loan. The only fees you may incur would be ATM fees, or overdraft fees if you took out more than you have in your account.
If your credit card has a PIN, you can get cash advances directly from an ATM. Otherwise, you can take your card to a bank that offers advances through your card’s payment network, such as Mastercard or Visa and you will have to show ID.
What Does It Cost?
Using a credit card without incurring any costs is quite possible. If you choose a credit card with no annual fee and you always pay the bill on time, you won’t owe money to the bank.
Cash advances have a higher cost than regular transactions. You’ll be charged a cash advance fee and, usually, a higher interest rates than you’d pay for purchases. The cash advance fee can be charged as a percentage of the cash advance or a flat rate.
Cash advances don’t have a grace period, meaning interest begins accruing on the balance as soon as the transaction is completed. In order to reduce the amount of interest you pay on a cash advance, simply pay it off as soon as possible.
Alternatives to Cash Advances
If you find yourself in need of cash quick there are other options besides taking Cash Advances. While none of these are perfect solutions, they can potentially cost less.
- Personal Loan:
- This option will be expensive if your credit isn’t great, but the interest charges and terms will still be more favorable than a cash advance
- Borrowing Money:
- While this is an awkward solution, you can ask friends or families for the money you need, it provides the most in terms of savings.
- Overdrawing Your Checking Account:
- Instead of taking a cash advance at an ATM, consider overdrawing your checking account with your debit card
- You will face a fee, but you will not pay interest
Taking a Cash Advance means high interest rates and fees making cash advance loans thought of as a last resort. Emergencies happen and coming up short and finding yourself in need of cash is just part of life.
Hopefully this post helps you gain a better understanding on how taking out cash advances work.
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