While credit cards are handy in most situations, there comes a time when this form of payment may not be accepted. While this is rare since online transactions are the norm, it can happen. There are circumstances where your plastic just won’t cut it – perhaps your car has broken down, you need to take an emergency taxi ride or simply do some shopping at an outdoor farmer’s market. But what if you do not have enough money in your checking account, how would you cover that expense? Thanks to the wonders of modern technology, individuals can take out a cash advance on your credit card. Let’s find out more about cash advances, its benefits and drawbacks and whether it will work for you.
What is a Cash Advance?
In its most basic form, cash advances are short-term loans that can be taken out against your credit card up to a certain amount. Instead of swiping your card, you receive money in the form of cash from the ATM or at the bank. Many banks and financial institutions will offer a limit on the amount of cash you can withdraw from your card in the form of a cash advance, so you will unlikely be able to take the whole amount available on your credit card. This means that, should your expense be larger than what your limitation allows, you may have to look for an alternative.
So you are looking to take out a cash advance, and your expense is within the limit. Now what? While this option sounds like the most convenient in the world, it should be known that there are extra costs involved in the long run. Cash advances come with a variety of fees on top of the standard ATM withdrawal charges. That means that every time you take a cash advance, you will be hit with additional fees, which can be anything from 2 to 5% the cost of your cash advance. Some banks, on the other hand, charge a flat fee regardless of the amount of the cash advance. You will also be required to pay interest on the money you have borrowed, which is usually higher than regular interest rates on your credit card. The interest will start building from the moment you take out the cash advance, so it is better to repay the cash as soon as possible.
Despite the additional costs associated, cash advances can certainly help individuals and business out in times of need, although it is a decision that shouldn’t be taken lightly. It is important to review your financial situation before choosing this option and be aware of the additional fees and interest rates associated with cash advances.