What is a Cash Advance?
A cash advance is a type of short-term, cash loan available through your credit card provider. You can use your credit card to withdraw cash at a bank or ATM, but the amount has to be paid back with interest. This arrangement might be convenient when you’re in a pinch for cash, but usually comes with a steep price tag.
Why Cash Advances are Expensive
While getting a cash advance might be easy, the rates and fees associated with the financing option are some of the highest on the market. That’s because cash advances work differently from any other credit card transaction. Here are the major factors that contribute to the expensive price:
Normally, the Annual Percentage Rate (APR) associated with these loans is in the 20% range, at least. Most expenses come from 3 sources: cash advance fees, ATM or bank fees, and interest rates.
Cash advance fees are charged by your credit card issuer. Some enforce a flat fee while others charge a certain percentage of the amount taken out. Or, you might see a percentage charge paired with a minimum dollar amount, whichever is greater.
Depending on where you take out the funds, you might run into additional fees from the bank or owner of the ATM.
Interest rates on cash advances are generally higher than any other credit card rates, like standard purchases and balance transfers. On top of that, interest usually starts adding up right when the transaction clears your credit card account. There’s no grace period, which means you aren’t given a full billing cycle to repay the total.