Credit cards are one of the best financial tools we can use to improve our lives. We can pay for things we want and things we need in the blink of an eye!
Of course, there are interest rates and fees on credit cards that we need to pay for, but this is the price for receiving such a convenient tool.
For some people, credit cards are like a sharp knife. They can be both valuable and dangerous. Well, in reality, this really depends.
It is not a secret for anyone that people might fall into debt spirals due to credit cards. But we won’t focus on their negative side, let’s look at the advantages we can receive from them.
One of the most significant advantages of credit cards is the possibility to perform a cash advance. Sometimes, there are things in our daily life that we can only pay with cash.
But you don’t always have enough cash with you all the time, do you? In that case, credit cards will help us get the cash we need in no time.
Still, there are some things that you must take into account before making a cash advance.
In this article, we will give you information about:
- All you need to know about cash advance.
- How to take a cash advance.
- Costs of a credit card cash advance.
What is a cash advance?
We can safely say that a cash advance is a sort of short-term loan. The only difference with personal loans and payday loans is that you are borrowing money from your credit card and not from a lender.
For most people, using their credit cards is the fastest and easiest solution for money inconvenience. All the credit card user needs to do is go to the nearest ATM and get the money, as simple as that.
Although this might sound like a fairy tale, the reality is that there are many important factors that we must consider before making a cash advance.
Besides, one of the biggest differences between cash advances and loans is that cash advances are repaid at the borrowers’ discretion. You can repay it next month, or maybe in two months. In that scenario, they are way more flexible than loans, but beware of interest rates!
How do they work?
The first thing you need to know to understand the functionality of cash advances is that they work differently than regular purchases on credit cards.
Therefore, you will probably get a lower amount of money in a cash advance than when buying something.
You don’t need to fill out an application to get a cash advance, just go to an ATM, and that’s it.
The financial institution (credit card issuer) will later get the money back, and it will be repaid with fees and interests.
How to take a cash advance
Firstly, be sure to understand how much cash you want to withdraw. But more than how much “you want,” you need to check how much “you can.”
The best way to check this is by login into your online bank account. There are three primary ways to receive cash advances:
- Using an ATM.
- Using cash advance convenience checks.
- Going to a bank branch.
If you decide to use an ATM, you will need to have a PIN set up for your current credit card. After that, just select the amount of money, and you are ready to go.
Consider that making cash advances in bank branches have different requirements than the ones mentioned above. Sometimes, they might ask you for proof of identity. This can be provided with a photo ID or your driver’s license.
Are cash advances cheap?
Not all credit cards are the same. Still, the standard cash advance fee is between 2% and 8%, but there’s always a minimum fee of around $5.
So, if you make a cash advance for $1,000 and the fee is 5%, you will pay $50 for it.
Besides, remember that the ATM will also charge you a transaction fee for making an advance.
On top of that, cash advances usually don’t have grace periods. When the moment to repay your credit card comes, the minimum payment will go toward your purchase balance first and not toward your cash advance balance.
This creates the need to pay off the advance as soon as we have the possibility.
Disadvantages of a cash advance
Although it is pretty clear that, most times, when a person makes a cash advance, they do it due to a money hurry, we must still mention the disadvantages of a cash advance.
- High-interest rates: you will for sure pay more in interest rates for cash advances than for regular purchases.
- Low borrowing limits: as we mentioned before, you will probably receive cash advances for a lower amount than your actual credit limit.
More fees: Cash advances are full with fees. There are processing fees, ATM fees, no grace period for users, and so on.
Do you really need a cash advance?
At this point, it is pretty evident that cash advances are not always the ideal solution to a problem.
Nonetheless, they might still make sense depending on your particular scenario. There are other options that you can also check before considering cash advances.
For instance, personal loans can be used for whatever you want, and they can be secured or unsecured. Also, interest rates of personal loans tend to be lower than cash advances.
Besides, you can borrow money from your family or friends if you are in an awful situation. But, then again, it all depends on your needs.
Keep in mind that if you want to get a safe loan, we can help you achieve your objectives as soon as we can.
At the end of the day, knowing the alternatives we have at our disposal is the best way to improve our financial situation and financial future. Never stop learning, your pocket will thank you!