There are many times in our lives where funds can get extremely tight. Most of us tighten our purse strings and patiently wait for sunnier days but others get caught up in temptation and turn to their credit card for cash advances. The fact is, this is a costly habit, one you should be quick to break.
Cash advance interest
A cash advance service is offered by most credit card providers and allows cardholders to withdraw cash using an ATM or over the counter. There is usually a limit on how much you can withdraw from an institution using your credit card and in most cases you’ll pay interest on your cash advance from the moment you withdraw the money. This is unlike when you make a purchase using your credit card, when you may be offered up to 55 days interest free.
Making a cash advance using your credit card can be costly and not simply because of the typically high interest rates charged for the privilege. In the year to April 2011, Australians withdrew almost $11 billion cash from their credit cards, paying around $2.15 billion in interest as a result.
Cash advance fees
What credit card holders may not realise is that when you make a cash advance, you may also be paying a fee for the service, even if you withdraw the money from your own bank’s ATM network.
Many providers charge this service fee, which is added to your credit card balance – so you may also be paying interest on this.
While fees have been gradually rising for cash advances, it seems that the number of cash withdrawals and the amount being withdrawn from credit cards is declining. It’s a good sign that credit card users are realising the high cost of cash advances, but there are still many Australians relying on their credit cards for extra cash.
Opting for a cash advance may seem like your last resort when you’re in need of money quickly, but there are a number of financial alternatives that you should consider before going to the ATM. Personal loans, for example, have much lower rates of interest on average compared to cash advances, so may be a cheaper option for you.
However, if you have been knocked back on a personal loan application and you’re turning to cash advances as a result, then it’s worth comparing credit cards online. RateCity compares over 200 Australian credit cards so you are bound to find one that suits your particular needs.