The Impracticality of Credit Card Cash Advances
The promise of cash advance, especially when this is tied to your credit card is totally tempting. The thought of instant money right in your metallic card is so convenient that you usually fall prey to this offer. The fact, however, is that using the cash advance option of your credit card is more impractical than practical.
Why is this so?
First, cash advance transactions do not have any grace period. Unlike card purchases that give you 30-45 days before you need to pay for those transactions, cash advance does not work this way. This means that even if a day after you've taken the money (from the ATM) you've made payment, you'll still be charged with the corresponding finance charges. In short, as soon as the money is released out of the ATM, then you're in for a relatively high interest rate.
Now, this piece of information may not be readily available because this is not really the primary purpose why people get a credit card. Those who apply for those metallic, magnetic and plastic cards want to make card purchases in their favorite stores or want to pay in establishments where Visa's and MasterCard's are very much welcome. The need to avail of this cash advance option gets emphasized when you need immediate cold cash -- for transactions that do not accept your prestigious cards.
Second, cash advances have different interest rates -- and always, these are slightly higher than those imposed on credit card purchases. And because cash advance transactions do not have a grace period, the overall finance charge imposed on you could skyrocket!
Wikipedia reports that in the US, interest rates for card purchases vary between 6% and 12%. The interest rate (remember, this is charged to you outright, no grace period given) for cash advance is between 20 and 25%!
Still, some card providers charge a flat rate for cash advance transactions. So whether you've borrowed $100 or $300 in cold cash, the finance charge will be the same.
And the list does not end. Other card providers charge a combination of percentage and flat rate as finance fee. Imagine the amount of money that you have to repay out of a simple and one-time withdrawal from your credit card!
Lastly, some credit organizations require you to pay your card purchases first. This means that unless you have lowered your credit card bill to a minimum or to zero, you would continue to accrue interest rates for your cash advance. They only deduct your payment from your cash advance balance once your payables from your purchases are cleaned.
Now imagine if you cannot fully pay your balance in a month's time, think about how much interest rate the bank can collect from you from your cash advance! Yes, you probably wouldn't want to calculate it unless you want to have a heart attack.
True, you may get instant cold cash through cash advance but the repercussions of this action may be far from favorable. You may not need to put up collateral or to wait in long lines because credit cards automatically provide you with a separate cash advance limit. All you have to do is line up in an ATM. But the finance charge for cash advance transactions could kill you.
Therefore, before you decide to use that plastic card to get instant cash, think again. Other methods have to be exhausted first. You may want to avail of personal loans, payday loans or you can even borrow money from a friend. Credit card cash advances should be the last resort because more often than not, this choice is highly impractical.