What is a Credit Card Cash Advance?

Credit Card Cash Advance

Aside from making purchases online and in-store or transferring a balance from another credit card, your credit card has the capability to get cash.

Taking a cash advance from your credit card can be useful when you need money to pay for your purchases in stores that only accept cash or if you can’t withdraw from your bank account.

Before you decide on taking cash advances from your credit card, let us give you a clear definition of a cash advance and why it can be one of the most costly transactions you can make.

Credit card cash advance – defined

A cash advance is the amount of cash you borrow from your credit card. When you withdraw money from the ATM you are using your debit, in this instance, the cash comes from your credit card’s credit limit rather than your bank account’s balance.

This means you have to pay the money you borrow with interest. You can do this type of transaction by using your PIN at an ATM or by mailing a check given by your credit card issuer.

If you were unable to set a PIN upon opening your account, you may call the credit card company’s customer service phone number and request a PIN that is designated to your credit card.

Your credit card cash advance is linked to your credit card and requires a credit check to be approved. And can be paid over in installments as long as you pay the minimum amount required.

Most credit card companies do not allow you to max out your credit line for cash advances. For most cardholders, cash advances are limited to a few hundred dollars. This is great if you only need enough cash in cases of emergency.

How much money you can take from your credit card

The amount you can get will depend on your bank and your FICO credit score. A FICO credit score is what the moneylenders use to assess credit risk and identify whether they can extend credit. The higher your FICO score, you can borrow more money from your credit limit for a cash advance. Just keep in mind that you can never borrow cash that is greater than your credit limit.

Why cash advances are costly

It may be easy to acquire a cash advance but it can be expensive once you have the cash in your hands. Here are the various reasons why cash advances are costly:

Cash advance fees – these are issued by the credit card company. The fee per cash advances varies. Sometimes it costs $5 or $10. Others charge at least 5% of the amount you advanced.

Interest fees – This can be much more expensive than you expected because the interest rate being charged by the credit card company on every cash advance is more than the rate charged when you purchase an item. Also, the interest on cash advances are charged right away on your account, no grace period allowed.

ATM or bank fees – these fees are coming from the financial institution that manages the transaction – the ATM company or the bank where you acquired your cash advance.

Taking out cash advances is an important decision because it has an impact on your personal finances. This is an added cost because it is different from the balance coming from your purchases. Cash advances have higher interest rates and it begins accumulating interest the moment that you have the cash in your hands.

Credit Card Cash Advance

Other ways of obtaining quick cash

If you find yourself in a sticky financial crisis and you don’t know where to go, you can consider other options that charge less than a cash advance:

Personal loan – Having a good credit score makes you worthy of a cash loan. This can only be expensive if your credit standing is less than impressive but the interest rates are far less than a cash advance.

Borrowing money – This can be uncomfortable for you because you are borrowing money from friends or family because they might think that you are in big financial trouble. But there are most likely no interests and you will get more savings by not paying off other fees.

Overdraft your checking account – Instead of acquiring a cash advance from an ATM, you might want to consider overdrawing your checking account through your debit card. There is a fee but you don’t have to think about paying interest.

In times of dire need of financial assistance, taking a cash advance is somehow a good idea. This is viewed as an expensive short-term payday loan from a legal cash lender that can impact your personal finances. However before diving into cash advances, exhaust all options before going to the ATM and process a cash advance.