Why you should never take a credit card advance: You are in need of cash but you recall that your bank account does not enough money. But hey, you have a credit card that allows you to withdraw cash for little fee. You relax and head to the nearest ATM.
You have no idea that you are going to put yourself in an even bigger trouble. In short, credit card cash advance is the most expensive way to get extra money. Don’t understand why? Read further.
Cash Advance: Savior or Troublemaker?
When you use your credit card to purchase things normally, you usually have an interest free period. But that is not the case when you withdraw cash. Interest starts accruing from the day of withdrawal. Not only the time, but you will attract a higher rate of interest. Cash advances have APR as high as 25%.
Another thing is the cash advance fee. Most companies charge between 2 to 5 percent. This means that you not only end up paying more interest, but you will also have to pay a fee to avail this service.
To understand it in simple terms let’s take an example, consider borrowing 10,000 rupees using cash advance. Assuming the APR to be 25% and 3% as cash advance fee, you will be charged 300 rupees immediately for using the service. Now, interest will start accruing interest from day one. So, if you take 1 year to repay the amount, you will be paying 2,500 rupees as interest. In the end, you will pay extra 2,800 rupees for 10,000 rupees.
Oh that sounds scary! But what do I do?
Here are some better ways to get cash in advance.
Ask from a friend or family member to lend some money to you. They will not ask you for any interest most probably. Best way is to write the agreement on paper so that you can refer to it back. But do this only if you are sure that you will be able to repay the amount on time. After all, friends and family are more important than money.
Take a salary advance. You should check from your employer if he provides any salary advances. Not all employers have this policy but majorly allow. Salary advances don’t attract any interest as it is your own money. But yeah! Your next paycheck’s going to reflect the loss.
If all of these fail, you can try for a traditional loan from the bank. A good credit score can help you land a loan easily. The interest rate is much more affordable than a credit card cash advance. You can get a loan for as low as 5% rate of interest. Look for a personal loan.
If all of these fail then you should reconsider if you really need then go for a cash advance. Though, you should behave financially intelligent during the entire repayment tenure.
But in any case, the math shows that the cash advances are the most expensive ways to get quick cash. You can also be at the risk of falling into a vicious trap of debt.