Sure, credit card cash advances can prove to be priceless in emergency situations. However, they also come at a price, and a huge one at that. Before you decide to use a credit card cash advance, be warned.
Though getting cash by using your credit card is an option, it should not be done regularly. Ideally, the feature should only be utilized in emergency situations. This is because of the significant costs that come with a cash advance.
Accordingly, in this article, we share 5 reasons why credit card cash advances are a terrible idea. Read this article and take caution the next time you are thinking about using a cash advance.
1. Insane Interest Rates
Interest rates on credit card cash advances tend to shoot through the roof. On average, cash advance interest rates are around the 24% mark, which is a lot more than the credit interest rate charged on purchases, which is usually about 16%.
Depending on how much you draw out, as well as how much time you take to repay the cash advance you get, the amount you will pay as interest can be truly substantial.
2. Interest Is Applied Immediately
On credit card cash advances, interest is applied by banks immediately upon your withdrawal of the money. There is no interest-free credit window, also called a grace period, as is the case with your usual credit card purchases.
To give you an example, if you avail of a cash advance today and repay your bank within one week of withdrawing the advance, you will be charged interest by the bank for that one-week period.
Otherwise, with regular credit card purchases, there is ample leeway as far as interest is concerned. Depending on the bank, you could be looking at an interest-free credit window of anywhere between 30 days to 45 days, and in some cases, even higher, for normal purchases.
3. Alternative Loans Are Rarely as Costly
Credit card cash advances can only really be justified if alternative loans were either just as costly or costlier, but that is definitely not the case at all. For example, personal loans come with half the interest rate of credit card cash advances, or even less.
A credit card cash advance is especially not justified from an interest rate perspective. There are ample alternative options that are not as costly. A loan against your property or vehicle, for instance, is nowhere near as costly as a credit card cash advance.
However, not all loans are created equal. Payday loans may prove to be just as costly and should only be considered and opted for when in desperate times.
4. Unavoidable Credit Card Cash Advance Fee
Credit card cash advances come with a fee which is in most cases unavoidable. Essentially, this is a fee that issuing banks apply the moment you take out a cash advance. Therefore, there is practically no way that you can avoid this particular credit card cash advance fee.
While the fee by itself may not be huge, it only adds to the costs of cash advances. Remember that there may be other fees that would also apply with certainty, which would only increase as you take more time repaying the bank for the cash advance you took out.
5. Inapplicable Reward Points Benefits
When you swipe your credit card to make purchases, you almost certainly get reward points for doing so. But in the case of credit card cash advances, there are no such reward points to glean.
Yes, this may seem like a minor factor, especially in an emergency where swiping your card may not be an option and the only way out would be to get a cash advance – in such situations, you really may not care about reward points at all.
But in all other cases, reward points do matter to most. Moreover, this is another reminder of the “emergency-like” nature of credit card cash advances – you should only avail of them when you really, really need them.
Conclusion
Credit card cash advances may be extremely convenient and prove handy when you urgently need cash in hand, but it is strongly recommended that you refrain from using them.
Ideally, always look for ways to use your credit card as you would with regular purchases. And in most places around the world today, that is really not very difficult to do.
Disclaimer: All credit products carry risk. Be aware of these risks by reading the associated terms and conditions.