If you’re in a pinch and need cash fast, you may be considering a credit card cash advance. But how does this type of transaction work? We break it down for you here.
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What is a Credit Card Cash Advance?
A credit card cash advance is a service provided by most credit card issuers. It allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial institution, up to a certain limit.
There may be fees associated with a credit card cash advance, including a cash advance fee charged by the card issuer and/or a higher interest rate applied to the cash advance balance.
Repayment of a credit card cash advance begins immediately, with any remaining balance subject to the regular credit card interest rate. This can make credit card cash advances an expensive way to access funds.
Before taking out a cash advance on your credit card, it’s important to understand the fees and terms associated with this type of transaction.
How Does a Credit Card Cash Advance Work?
A credit card cash advance is a service provided by most credit card issuers. It allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial institution, up to a certain limit. There may be a fee for this service and the interest rate on cash advances is usually higher than the rate for purchases. Let’s take a closer look at how a credit card cash advance works.
With a Credit Card
If you have a credit card, you can get cash from an ATM or financial institution that offers cash advances. To do this, you’ll need to have your credit card and some form of identification, such as a driver’s license. You may also be asked to provide proof of income, such as a pay stub.
When you get a cash advance from a credit card, you’re essentially borrowing money against your credit limit. The amount of money you can borrow will depend on your credit limit and the cash advance fee that your card issuer charges.
Most credit cards have a cash advance APR that is higher than the APR for purchases. For example, if your card has an APR of 21% for purchases and an APR of 24% for cash advances, you’ll pay 3% more in interest if you choose to get a cash advance.
Keep in mind that taking out a cash advance will also trigger a cash advance fee, which is typically around 5%. So, if you’re planning on taking out a $1,000 cash advance, you can expect to pay an additional $50 in fees.
It’s also important to remember that any interest you accrue on a cash advance will begin accruing immediately. Unlike with purchases, there is no grace period for cash advances. That means if you don’t pay off your balance in full each month, you’ll start accruing interest right away.
With a Debit Card
You can get cash from your checking account even if you don’t have a credit card. You can use your debit card at an ATM or ask for cash back when you make a purchase at a store.
If you have a checking account, you probably have a debit card that goes with it. A debit card allows you to spend money that you already have in your account. You can also use your debit card to get cash from your account through an ATM or by asking for cash back when making a purchase at certain stores.
When you get cash back with a purchase, the store usually charges a fee of around 3% of the total purchase. For example, if you spend $100 and get $10 cash back, the store has essentially loaned you $10 for free. The fee is subtracted from the total amount of the purchase, so you only pay for the items themselves.
Getting cash from an ATM is usually more expensive than getting cash back with a purchase. When using an ATM, you will typically be charged a fee by both the bank that owns the ATM and your own bank. These fees can add up to around $5 per transaction. In addition, some banks charge interest on cash advances from ATMs starting on the day of the transaction, even if you pay off your balance in full when your statement arrives.
Check with your bank to see what fees and interest charges apply when using your debit card to get cash from an ATM or making a purchase with cash back.
What are the Fees for a Credit Card Cash Advance?
When you get a cash advance on a credit card, you are essentially borrowing money against your credit limit. The interest rate for a cash advance is usually higher than the rate for purchases, and you will start accruing interest on the cash immediately. In addition, most credit card companies charge a transaction fee for each cash advance, which can be anywhere from 3% to 5% of the total amount. For example, if you take out a $500 cash advance, you could be charged a $25 transaction fee.
How to Avoid a Credit Card Cash Advance
There are a few things you can do to avoid a credit card cash advance. First, you can use a debit card instead of a credit card. This way, you’ll never be able to spend more money than you have in your account. Second, you can use a prepaid card. These cards work like debit cards, but you’ll have to load them with money in advance. Finally, you can use a personal loan from a trusted lender. Personal loans usually have lower interest rates than credit card cash advances, so this is usually the best option if you need cash quickly.
Alternatives to a Credit Card Cash Advance
There are a few alternatives to taking out a cash advance on your credit card. One option is to get a short-term loan from a lender such as a bank or credit union. These loans typically have lower interest rates than credit card cash advances, and you may be able to get a longer repayment term. Another option is to use a peer-to-peer lending platform to borrowing money from individuals or institutions. This can also often be cheaper than taking out a cash advance on your credit card.