Understanding the Cash Advance

A cash advance is a specific type of loan that involves using a credit card to secure funds. The most common way to get a cash advance is to use a credit card at an ATM machine to withdraw money. This is considered different than a regular purchase and will usually come with an interest rate that is up to 7% higher than for regular credit card balances. Additionally, most credit card companies charge a $10 to $20 fee to administer a credit card cash advance, running up the cost further. As if that is not enough, those who use an ATM outside of their banking network will most likely be charged fees on top of those previously mentioned. These ATM fees can be as high as $5 per transaction, depending on the institution. Those who belong to a network that offers online banking have the option of an online cash advance. This is similar to the aforementioned method, but can be completed entirely online by transferring credit from a card to a checking or savings account. With almost all cash advance loans, there is no grace period which means interest accrues from the minute you withdraw or transfer the funds. Cash advance interest is compounded, making it a very expensive way to get money up front.

Be Aware of the Terms and Conditions

Customers who use cash advances on a regular basis should be aware of the terms and conditions associated with such loans. Credit card companies often limit the frequency of cash advances allowed as well as the total amount available to borrow. Like other lending products, the federal Government has started to regulate cash advances. The Credit CARD Act of 2009 limits the penalties credit card companies can impose if loans are not paid back completely. In order to make up for lost revenue by tighter regulation, it is inevitable that credit card companies will look for different ways to bring in money. Usually this results in even higher interest rates and stricter terms. This is why it is crucial to closely examine the terms and conditions of a cash advance, because they may have recently changed. Also, be sure to read the disclosures and any notices that contain changes to terms and services.

Intentional Overdrafts

Recently, the banking and credit industry faced tighter regulations on fees and interest rates. As a result, most companies are forced to cap overdraft fees at a lower amount than in the past. Some consumers have picked up on this and intentionally spend more than their current bank account balance through checks or debit cards. This is method comes with certain potential repercussions as the bank or credit card company could close the account if it appears overdrafts are a regular occurrence.

When Should I Consider a Cash Advance?

When you need cash in a hurry, it is important to objectively examine your options. While a cash advance might seem convenient, it is important to understand the true costs linked to this type of loan. Also, make sure you are not in jeopardy of maxing out the credit card limit which will force you to repay the balance before getting more credit or requesting a higher credit limit. Compare the convenience fees and interest rates associated with a cash advance to alternative short-term loan products to ensure you are getting the best value.