Credit cards have proven themselves to be quite useful time and time again. They have allowed us to make purchases both online and offline, and are overall just handy to have. Another perk these pieces of plastic have is letting you get a cash advance.
What is a cash advance?
A cash advance is one of the many perks credit card companies offer their clients. It allows the user to withdraw money from an ATM as you would with a debit card. But unlike a debit card which subtracts the money from your savings, the credit card takes the money from your credit. And it is often available only for those who have not maxed out their limits.
Now, being able to get a cash advance allows you to use the money for various purposes. But it also has its fair share of drawbacks you have to be aware of. Here are a few of them:
If you hate interest rates, then you will definitely dislike the fees that credit card companies lump together with these cash advances.
Typically, credit card providers charge up to 5 per cent of your cash advance total amount or even a fixed rate.
For example, if the cash advance fixed rate fee is $5, and the cash advance that you got is $50, then you would have to pay $5 since 5 per cent of $50 is only $2.5. However, if you got a cash advance of $150, then you would have to pay a fee of $7.5, which is 5 per cent of your cash advance amount.
No grace period
Unlike when you use your credit card, the interest on a cash advance kicks off as soon as the ATM dispenses the money. There is no grace period, and the bank wants you to pay them back as quickly as possible if you don’t want to be buried deep in debt.
Aside from the outrageous prices that we mentioned earlier, you will also need to pay other costs like the ATM service fee. This is just one of the many additional charges you have to pay with your credit card if you decide to take out a cash advance.
Now that you have a better idea about what could happen when you take out that cash advance, think about it more carefully. Especially if you’re planning to use the money on something like a down payment for a car lease.
It will be a significant commitment that you need to pay back as soon as possible, no questions asked. You might be better off saving for the money instead of jumping into a hole where you are not sure if you can get out of.