A Crash Course in Credit Card Cash Advances (2 of 3): Know the Dangers
“Fast cash” products like credit card cash advances may seem like your only option if you’re facing a tough time financially, but do a little research and you’ll quickly see that credit card cash advances should be high on your list of things to avoid.
There’s plenty to say about the dangers of predatory payday and title loans—but did you know that credit card cash advances can be almost as expensive? Just like predatory loans, credit card cash advances can damage your financial future.
The most common dangers you can expect to encounter with a credit card cash advance include:
Sky-High Interest Rates
You’re probably used to using your credit card the traditional way: buying a big ticket item like air travel or a home appliance and then paying it off. But using your credit card to get a cash advance works differently, and has much more dangerous consequences.
A standard credit card purchase carries about 18% interest. The longer the debt is outstanding, the more interest accrues, and the more expensive that purchase you made becomes. But with credit card cash advances, the interest rate is much higher: 24.4% on average. Credit cards are already an expensive tool. Why make it more difficult for yourself by using credit in this much riskier way?
Okay, so you’ll be paying higher-than-normal interest with a credit card cash advance. Maybe you can live with that—you might not like it, but hey, this is an emergency, right? Well, hold on … because it actually gets worse.
On top of those enormous interest rates, you’ll also be on the hook for additional fees and charges like a cash advance fee of 3% with a minimum fee of $5-$10. These fees may seem small but they add up. And frequently, they’re disguised with vague names like “finance charges” and “convenience fees”. If you opt to use an ATM to take out your advance, you’ll also be hit with an ATM charge.
So now you’re not only paying more interest to have this cash on hand, you’re also paying fees to be able to get it! It’s easy to see how quickly the value of a credit card cash advance slips away. Read more in Cash Advance Loans: Payday Loans Under Another Name.
No Grace Period
Okay, so now we’re borrowing against our credit limit at higher-than-average rates plus fees. It can’t get worse than that, right? Well let’s take one last look at the ugly truth about credit card cash advances and see…
A grace period is the amount of time between making a purchase, or taking out a loan, and when interest starts to accrue. For instance, when you make a purchase with your credit card, the interest won’t begin adding up immediately. You may have a month or so to pay off that purchase before you’re charged any interest at all. That means if you pay off your balance before the interest starts to build, then the cost of borrowing is zero. When you use your credit this way—correctly—credit cards seem like a pretty useful tool. But this isn’t the case when you take out a cash advance.
With credit card cash advances, interest begins accruing the second you have that advance in your hand. Remember that higher-than-average interest rate. Now you’re paying it immediately!
At the end of the day, credit card cash advances are a misuse of credit cards. People turn to them when they think they have no other options. But often, they do! If you’re facing a financial hardship and need cash in hand quickly, don’t turn to a destructive credit card cash advance. Instead, consider a safe and strategic personal loan from OppLoans. Our installment loans and line of credit products are fast, easy, and transparent—you’ll always know exactly what you’re getting—and we never charge pre-payment fees.
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