A cash advance is nothing but a short-term loan. It may seem like an interesting and easy option to choose but at the same time can be a really tricky one as well. Before opting for a cash advance, one must have complete knowledge about it and its working. Taking a cash advance without any Knowledge about it can result in a slippery road ahead. You can end up in a lot of debt, if not taken preventive measures before choosing a cash advance.
How does a cash advance work?
A cash advance is a short-term loan from your credit card company. You’re borrowing money from your credit card’s line of credit when you get a cash advance.
There are a lot of ways through which you can get a cash advance:
At an ATM:
You can acquire a cash advance from an ATM if you have a PIN for your credit card. You can get a PIN from your card issuer if you don’t already have one. It’s important to keep in mind that getting a PIN can take a few days, and there are typically limits on how much money you can withdraw from an ATM.
In-person:
To get a cash advance with your credit card, go to your bank and make a request.
Convenience check:
Convenience checks, which may be used to write a check to yourself, may have come with your credit card. After that, you can cash it or put it in a savings account.
Cash advances are a convenient method to get money quickly, but the costs typically outweigh the benefits. Review the terms of a cash advance before you take one out so you’re informed of the exorbitant fees you’ll likely face.
Why do people prefer cash advances over any other source?
Cash advances are instant money and people tend to get tempted by this idea of getting cash instantly for their purposes like:-
- Businesses buy new machines and equipment,
- To pay off the salary of the employees,
- Renovation purposes, etc.
However, what they don’t realize is actually what is underneath. All the benefits which people might see for cash advances is a myth and actually what happens after taking one is a nightmare.
People get high debts which then become really difficult to pay off which is absolutely one would not wish to face.
Reasons why one should avoid cash advances?
Here are some of the reasons a person must never prefer a cash advance at any cost:-
Fees:
Whenever you take a cash advance, just remember that it’s not free. Cash advances incur heavy fees at the time of taking an advance and very often afterward as well. The fee is calculated by taking 1-3% of the total money taken by the person.).
Interest:
If you thought cash advance costs were awful, wait until you see the interest fees. Carrying a load on your credit card is expensive as you probably already know, but you may not realize that cash advances are even more so.
The reason for this is that cash advance interest rates are typically substantially higher than standard transaction interest rates – up to 30% in some situations. Even if you simply take a cash advance for a few days, as you can guess, you can quickly accumulate debt.
There is no grace period:
Credit cards can help you manage your monthly financial flow and earn points if you use them wisely and pay off your monthly bill in full each month.
You have a 21-day grace period after the date of your statement for purchasing transactions. You don’t have that luxury with cash advances; interest begins accruing instantly the moment you take one out.
Because credit card interest is calculated based on your daily closing balance, you might rack up a significant amount of interest even before receiving your first statement.
There are no incentives:
Think again if you were banking on reward points to help you pay cash advance fees.
Cash advances are not eligible for rewards points because they are viewed as cash debt against your credit.
Some alternatives to cash advances
Cash advances may seem easily accessible and tempting but you will end up building a debt for yourself by the end of the day, if not handled carefully.
We propose that you avoid taking out a cash advance and instead look into some other choices with better terms.
Family and friends:
You can borrow money from family or friends. While asking can be awkward, it is often the most cost-effective approach to obtain the funds you require.
Personal Loan:
Personal loans normally have better conditions than cash advances, and if you have good credit, you can get more money.
You may normally repay a personal loan at a fixed interest rate that is substantially cheaper than the annual percentage rate (APR) charged by credit card companies.
Conclusion
Cash advances will leave you with debt and with such high-interest rates that it will be really difficult to pay them off.
This brings us to the end of the article and we hope you are now clear about how to go about making decisions about cash advances.
In the above article, we have covered what are cash advances and how they must be avoided at any cost.
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