Cash advances on credit cards or store cards are a very common way for borrowers to get money quickly, but care should be taken when using this method as the credit card charges and interest rates involved are usually very high: it is considered the most expensive service available with a credit card.
What is a Cash Advance on a Credit Card?
Credit cards with cash advances allow a cardholder to withdraw money from an ATM or over the counter at a bank up to an amount based on their credit limit. They may appear to be the only option available when faced with a cash emergency, but making a credit cash withdrawal should only be a last resort.
Credit Card Cash Advance Fees
Credit card cash advances are generally charged at a higher rate of interest than other credit card purchases, and this interest is usually charged from day one with no interest free period. On top of this, hefty credit card cash advance fees are often charged. This is typically charged at 3% of the amount withdrawn, though a select few products do not charge a credit card cash advance fee.
0% Cash Advance Credit Cards
A 0% cash advance credit card is hard to come by, but is available with a select few lenders. 0% cash advance credit cards allow customers to make money transfers but pay no interest for a set term. This means that any credit card cash withdrawals will not incur high interest rates usually reserved for such cash advances, and the borrower will simply continue to make only the minimum monthly repayments.
As all interest free credit cards are for an introductory period only, a borrower is recommended to pay off their bills as soon as possible to minimise the amount of interest charged from their credit card cash advance.
Caution When Using Credit Cards for Cash Advances
Due to the high interest rates involved, it is very easy to get into financial difficulties when using credit cards for cash advances, which could result in significant credit card charges. This should only be done in the short term, if the borrower has the knowledge that he or she will be able to pay the debt back quickly.
Cash Advance Payday Loans
For those who might be experiencing cash flow difficulties and need help with unexpected expenses, a cash advance from a payday loan may be a viable short-term solution until the next payday. The privilege of borrowing a sum of money from a lender will, however, always come at a cost as the fees incurred through using payday loans can rise to extortionate amounts. For this reason great care should be taken before using this option.
Cash advance payday loans can be applied for online and a borrower will be assessed depending on the strength of their upcoming earnings, with most applicants being lent under £1,000 (though loans of a greater amount are available). They can be set to be automatically repaid once the borrower receives their next wage, but most must normally be paid back within 31 days.
Customers may see cash advance payday loans as a practical solution for avoiding late payment penalties on expenses they cannot quite yet afford, though the high fees for and punitive interest rates on these loans may override any apparent benefits. A payday loan should never be considered for long-term borrowing as the interest rates are renowned for being extremely high, particularly if the loan is not repaid within a month, which will also result in additional charges and could harm a borrower’s credit rating.
For this reason, extreme care should be taken when using payday loans for cash advances: all other possible options for raising money should be applied before resorting to them. The very high interest rates – sometimes thousands of percent – mean that it is possible to get into a vicious circle, where bigger and bigger payday loans are taken out to cover previous ones.