Loan Articles


Cash advances are offered by most charge card and credit card issuers, allowing holders to withdraw money over the counter and through an ATM up to a set limit. With credit cards, money can be withdrawn up to the credit card limit or a certain percentage of it.
Cash advances are used for emergencies given that they normally incur a fee. This fee replaces the interchange fee banks change on transactions. When the account is in credit, the fee may be waived. When a cash advance is made on a credit card, cardholders are typically charged a higher interest rate compared to store purchases. In addition, there isnít an interest-free period to allow the cardholder to pay the bill in full. Some items charged to a credit card may be regarded as a cash advance. Thus, no grace period will apply, and they will incur a higher rate of interest. Gaming chips, lottery tickets, money orders, and certain fees and taxes are included here.

If you have to visit the veterinarian or pay for another emergency, taking a money against your credit card balance may be one option. Applying for a personal loan takes time and may prove expensive. Cash advances are not cheap, however, and the money withdrawn this way is added to the balance you owe to your financial institution. This includes finance charges and interest payments. With some unsecured credit cards, interest can be as high as 23 percent. Any benefits are thus swallowed by the interest rate. If using a cash advance, it is best to withdraw enough money to meet your financial obligations and not more. It is also preferable to repay the advance quickly.

As said, advances incur a fee, which is the fee for borrowing against your credit card limit. You can calculate the fee in two ways, one being to calculate it as a percentage of the cash advance amount. If the fee is 4 percent, and you borrow $100, you will pay $4. This may not look like much, but what if you borrow $1,500? The fee is $60 then. Generally, your financial institution should disclose the method of calculating the fee. You can find it in your billing statement or credit card agreement. It is good to know how the fee is calculated before taking the money.

Note that there are other fees besides the cash advance fee. Depending on the ATM network you use, you may also pay an ATM fee. This adds between $2 and $4.
Speaking of interest, if you have two balances to pay within the same timeframe, a $400 cash advance will cost you more than a plane ticket for the same amount. The longer it takes to pay it back, the more you pay in interest. Moreover, if you have more than one balance, and different rate applies to each of them, your credit card issuer may cover your cash advance last. Again, this means that you will owe more in interest charges.

With no grace period, cash advances are also expensive as finance charges start to accrue the moment you take them. All these can lead to money problems. However, the fact you have to resort to a cash advance already indicates a problem. In the ideal case, your income is sufficient to meet your expenses. So, if you do not make enough to pay your expenses and bills, where will you find money to cover your card balance?

Cash advances really are for emergencies. Persons who resort to that face a higher risk of defaulting on their credit cards compared to those who do not. The reason is they may fall behind on payments.