Pennywise
Credit Cards: Cash Advance
by: Sahil | last updated: December 02, 2009
Category: Standard Credit Cards | Tags: Cash advance, cash advance fees, credit card, cash advances
Category: Standard Credit Cards | Tags: Cash advance, cash advance fees, credit card, cash advances
A cash advance is nothing but hard cash taken out of an ATM machine using a credit card and a PIN number. This is the most expensive way of getting hold of cash since interest starts accruing on the amount as soon as the withdrawal is made. Therefore, this method is strongly discouraged by many critics and consumers for getting access to instant cash.
Credit card companies thrive on this service as there is no grace period given to the borrower. Cash advances have an upper limit which depends on the credit limit and the credit score of a person. Usually a fixed amount of cash can be taken out on a weekly or daily basis depending on the credit score of the person.
Credit card companies apply payments to lower interest rate items first and then pay off the items that have a higher one. This means that cash advances are paid off at a later period compared to other items on your card. This is because cash advances usually have a higher rate of interest. Therefore it is important to pay off the complete amount that is owed rather than making the minimum payment. Even this will not reduce the amount of interest paid since it has already started accumulating from the day of withdrawal.
If a person uses cash advances and only makes the minimum payments then interest will keep accruing on the amount of cash that was withdrawn until it is paid off. This will take a long period of time since minimum payments are only 2% to 8% of the balance. Although it will not affect your credit score or rating, cash advances can take a toll in the long run and are best avoided.
If a person does use this service then it is possible to increase the amount that is available as cash advances. Many credit card companies increase the limit on the request of a customer if the credit history and scores are excellent. However, it cannot be denied that it makes little sense to use such an expensive interest accumulating service rather than a debit card.
More often than not people use cash advances in emergencies when they are out of other options. If you do not have funds available in your checking or savings account then its preferable to take out a bank loan or home equity line of credit instead of using cash advances. Moreover the amount that can be withdrawn is very small compared to the loans that can be acquired from other sources.
The credit card checks that are touted by banks and credit card companies are also considered as cash advances and are convenient but an expensive method of payment. Some balance of account transfers are also considered as cash advances and it is better to be sure before making balance of account transfers whether they are considered as cash advances.
Some credit card companies make it even easier for customers to withdraw cash by granting a preauthorization on the card. This enables the customer to simply withdraw the amount from an ATM machine without the PIN. This is one of the tactics for tempting people into making cash advances. Always make sure that such type of preauthorization is not present on your credit card and that you get the PIN from the local branch or customer service in order to avail of this expensive facility.
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