Everything About a Credit Card Cash Advance and Why It’s Bad for You

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Everything About a Credit Card Cash Advance and Why It's Bad for You

Do you need urgent cash and cannot find a source to get it? What if we tell you your credit card can give you that cash in just a couple of hours? To get a cash advance from your bank on your credit card, all you need is a number and an ATM machine. Sounds like a cakewalk, right? However, the reality is that the whole idea of a cash advance is way more complicated than baking a perfect cake.

How does a cash advance on a credit card work?

A cash advance is a loan your bank gives you, based on your credit card limit. Your bank will provide you with a PIN number that you will need along with your credit card to withdraw the desired amount from an ATM. You can also get a cash advance through a convenience check or a phone call. Almost every bank in Singapore has a cash advance option available.

Who is it for?

A cash advance attracts people who are in dire need of money and have no other way of getting it. However, this section of people also includes those who are sometimes not aware of other ways of getting urgent money.

Read more: Be Thrifty Now to Thrive in Your 30s

What is the fee for a cash advance?

A cash advance comes with a series of charges, both straight and hidden. These include application charges, withdrawal charges, interest charges, transaction charges, late payment charges, and so on. The worst one? The interest you will have to pay on the amount daily.

Yes, you read that right. Interest needs to be paid daily.

Most banks offer a cash advance on an interest higher than that on credit cards. Generally, an interest of around 28% p.a. will be calculated on a daily basis and levied on the amount withdrawn from the withdrawal date until full payment. Plus, the interest is subject to compounding if the monthly interest charges are not repaid in full. Banks also charge a fee of S$15 or 6% on the amount withdrawn, whichever is higher, for each cash advance transaction.

Cash advances attract a very high interest because these are considered by banks as high risk. When you withdraw cash using your credit card at an ATM, it’s difficult to get the money back or repossess the purchased item if you fail to repay the debt.

Read more: Never, Ever Commit These 3 Financial Mistakes – and How to Fix Them

What should you know before you apply for one?

Ask yourself the following questions before opting for a cash advance:

1. Do I REALLY need it?

People take cash advances for various reasons. What’s yours? If it is a designer bag or a fancy car you fell in love with, it would be wise to rethink your decision. However, if it is a genuine emergency, why not consider using your emergency fund? If you haven’t started maintaining one, it is never too late. Know why you need one and how to get started here.

2. Do I have any other source for the money I need?

If you really need a particular amount instantly, consider borrowing from a friend or family. You could also consider taking a credit line that comes with significantly lower interest rates as compared with a cash advance. Make sure you do a thorough research on the options you have before applying for a cash credit.

Read also: What You Need to Know About Cash Withdrawals Abroad

3. Will I be able to pay on time?

A cash advance will never be your best friend. Considering the humongous interest rates a cash advance comes with, you better be sure of repayment before taking one. In case there is any lapse in repayment, the already sky-high rates will hit such a peak that the whole purpose of benefitting from the cash advance will be defeated.

In case you still want to take a cash advance, talk to a few friends or family before going ahead. Also, it would be wise to clear out all your doubts regarding all the charges before you apply for one.

Here are a few more helpful reads on personal finance and money:

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