If you have a credit card, there’s a good chance you also have access to cash advances as well. Cash advances allow cardholders to withdraw cold, hard cash out of ATMs just as they would with a check card or ATM card. That’s why you’re given a pin number when you open a new credit card.
The major difference however is that cash advances are deducted from your credit line, not your bank account, and carry costly fees and high APR. Cash advances typically don’t carry any grace period either, so interest begins accruing the minute you withdraw the cash. In fact, cash advances are probably the most costly credit option available.
Most credit card cash advances come with APR at or above 20% along with a cash advance fee which is typically 3% for each cash advance, with a minimum of $5 and no maximum. So not only do you get nailed with an instant sky-high APR, you also get hit for each cash advance you take out. Not to mention the ATM fee if you don’t use an ATM from your card issuer’s network.
Also note that if you carry additional balances on the credit card, lower APRs will be paid off first, so you may be stuck paying 20% APR or higher on those cash advances until all other debt is paid off in full. The result can be a rather costly endeavor, and that’s why it’s strongly discouraged to use credit card cash advances.
Cash advances should only be reserved for emergency use only. When you have no other choice but to withdraw cash for the purpose of paying a loan, a bill, or any other cost that demands cash only, cash advances may make sense. But if you use cash advances frivolously, you’re simply throwing away your money to fees and finance charges.
If you receive convenience checks in the mail from credit card issuers they may likely be treated as cash advances as well, although some come with an introductory 0% APR, so they may serve a better purpose than a cash advance. Make sure you read the fine print to ensure you know the terms and exactly what you’ll be charged before taking up any offer.
