The idea of getting instant cash through your credit card may sound alluring, but it comes at a price… a very steep price! So before you take out one of these cash advances, here’s what you need to know.
Interest Rate: The APR for a cash advance is always higher than the purchase APR. Sometimes the difference is just a couple points more, but more often than not, it’s a flat rate which can be as high as 29.99%. Unlike purchases, this interest begins accruing the moment you get the money.
Fees: In addition to the interest, there is a fee which is a percentage of the total amount; usually ranging from 3 to 5%. So even if you took out a cash advance on your credit card for just one day, you would be charged that fee (making this loan awfully expensive for short term borrowing). If you use an ATM to withdraw the cash from your credit card, then you will probably be charged an ATM fee, too.
As you can see, a cash advance on your credit card is very expensive. Michael, the senior editor at CreditCardForum.com, says “Basically, they should only be used in the event of an emergency. If only a small amount is needed, then Discover credit cards can be helpful. Just like a debit card, they offer a cash back option on grocery store purchases. This cash back is counted as a regular purchase, not a cash advance. So if you only need $20 or $40, it’s definitely the best solution. I’ve done this a few times with my Sams Club Discover.”
Although cash advances using a credit card are expensive, in some emergencies they may be inevitable. Just make sure you fully understand the interest rates and fees beforehand.