Cash advances are a type of loan provided to you by your credit card company. The company allows you to take out a loan. How much money can a person borrow depends on the credit card company. Usually, there is a set limit. You can borrow the money from an ATM machine, the bank, or by filing a convenience checks issued by the credit card company.
Cash Advances vs. Credit Card Loan
When you use your credit card, you are borrowing money from the bank, but not in the form of cash. Since using a credit card to pay for something may not always be applicable such as paying for car repair or hiring a taxi, you may need cold hard cash. If you do not have sufficient funds in your bank account, you will need to use your credit card to receive a cash advance.
The Downside to Using Cash Advances
Although you can use cash advances to make quick purchases, but due to the limit, you will not get the entire amount you need to cover the costs of something. Cash advances do sound like a convenient option, but when you look at the costs associated it, you will ask yourself if it is really worth all that trouble.
Here is an example outlining the process of borrowing money against your credit card:
- To make a cash-only transaction, you need $800
- To obtain it, you need to obtain $40 to pay the upfront charge
- Once you have $40, the credit card company will give you a deadline to pay a 24.9 percent cash advance APR
- Over 20 months, you will have to pay approximately $1,000
- Add everything together; you will have paid an estimated $1,040 to obtain only $800
Other Facts to Consider before Choosing a Cash Advance
On the surface, cash advances may look like a convenient, quick, and hassle-free offer. Once you become tangled in the mess of repaying the cash advance, then that is when you fully comprehend what it is and how it was not the best option for you take. Here are some facts of why you should not borrow money using cash advances:
- With cash advances, you have to pay interest fees from day one.
- You will have to pay high fees to take out a cash advance against your credit card
- The interest rates associated with taking out a cash advance is high
- By taking out a cash advance, you will be lowering your credit card limit
In the end, it all depends on what you think is the best option for you. Should you take out a cash advance? If yes, will you be able to repay it in the given timeframe? You need to consider all the factors before you decide to apply for a cash advance. Conversely, you can always choose alternative methods to obtain cash such as borrowing from a friend or using your savings.…