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Why It Is Not Advisable To Get A Cash Advance + Alternatives To A Cash Advance

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For first time credit card applicants, the joy of receiving your very first credit card is undeniable. You’ve unlocked a whole new world of cashback and rewards!

You may be wondering, “Can I use my credit card to withdraw cash from the ATM?”

Yes. Many credit cards will allow you to withdraw money from an ATM.

That’s great news, right?

Not really.

Whether you’re a new or experienced credit card user, it pays to know that it is never advisable to withdraw cash with your credit card.

Using your credit card to access funds through an ATM is making a cash advance. This translates to a short-term loan, and it’s totally different from making a withdrawal on a debit card.

Typically, cash advances come with hefty fees. Even worse, lenders may perceive cash advances to mean you’re using money irresponsibly. It’s recommended that you use a debit card if you’d like to withdraw money from an ATM.

However, before we get to the cons of using your credit card for a cash advance, here’s all you have to know about getting a cash advance.

How To Know If Your Credit Card Could Work In An ATM?

There are three possible ways to establish whether you can use your card to withdraw cash from an ATM:

  • Cardholder statement: To know if your credit card can work in an ATM, check out the cardholder statement that came with the card. If you come across a Cash Advance Fee or Cash Advance APR, this means you can use the card to get a cash advance.
  • Credit card statement: The second way is to look at the credit card statement. If it contains cash advance credit limit or cash advance credit line, then the former shows the maximum amount of cash you can withdraw. It’s crucial to know this so your withdrawal doesn’t exceed the limit. Often, cash advances have a smaller credit limit than the card’s credit limit for making regular purchases.
  • Call your credit card company: If you can’t access the credit card statement or terms, you may look at the back of the card for a phone number. Call the number to ask if your card can allow cash advances and the possible limit of the cash advance credit.

Note that money order purchases are usually regarded as cash advances since you’re buying a cash equivalent. That implies that a fee will be charged and the interest will start to accrue right away. Therefore, it’s not advisable for you to use your credit card to purchase money orders.

How To Use Your Credit Card To Withdraw Money From The ATM

If you’re still thinking about getting the cash advance, here’s the procedure you can use, but if you have other alternatives, it’s best that you don’t resort to a cash advance.

  1. Confirm whether your credit card allows cash advances: To quickly find out, call the number indicated at the back of the card.
  2. Be sure of the amount of money you’re permitted to withdraw using the credit card: You can find out this from the card statement, or by contacting the number at the back of the credit card.
  3. Find or set the PIN: A PIN might have come with the card the moment you received it through the mall. If not, then you may probably have to request the credit card issuer about it. To achieve this, log into your online credit card account or call the phone number indicated on the back of the credit card. Note that it might take anywhere between seven and ten days for the PIN to be set up.
  4. Understand the cash advance terms and fees on your card: Figure out when you’ll pay the cash back, and do some arithmetic to establish how much extra cash you’ll need to pay for the cash advance you’re about to get.
  5. Locate the nearest ATM: Use your card and PIN to withdraw the cash. Remember a fee may also apply if the ATM you’re using is in a different network from that of your financial institution
  6. Pay back your cash advance soonest possible: A cash advance will begin to accrue interest immediately and so, if you delay paying it back, the debt might snowball to unmanageable levels.

Reasons Why A Cash Advance May Not Be A Good Idea

1. Steep Fees

You’ll normally be required to pay a fee based on how much cash you’d like to withdraw.

For most credit cards, this cash advance fee will amount up to either $15 or 6% of the advance amount, whichever is higher.

To put things into perspective, if you take a cash advance of $100, you would be charged an additional $15. On the other hand, if you take a cash advance of $2,000, you would be charged an additional $120 (6% of $2,000).

Another important thing to note is that this fee is charged on every cash advance you make. This means that it won’t be a wise idea to make several cash advances (on one or across different credit cards). Your Effective Interest Rate will also skyrocket.

2. High Interest Rates

Taking a cash advance can significantly increase the overall increase rate of your credit card. That is unless you repay everything before your next billing cycle.

Interest rates charged by credit cards for cash advances are usually around 29% p.a. as compared to the usual 26% p.a. on most credit cards.

The only plausible (but not very ideal as well) way to circumvent this is to pay your bills on time, before the interest is charged. However, you’ll still be charged with additional cash advance fees as aforementioned.

3. No Grace Period

Usually, when you use a credit card to make a purchase, the credit card company won’t apply interest charges immediately. They’ll only add on the interest charges if you fail to make repayment by the end of your billing cycle.

Nevertheless, things are different with a credit advance. When you withdraw money at the ATM using your credit card, they’ll charge interest right away, so the credit charges will go up immediately.

4. No Rewards Or Cashback

Most of us apply for credit cards to tap on the perks they come with: air miles, cashbacks, vouchers, rewards, etc. Meaning, that it’s supposed to provide you with some sort of reward for spending.

Using your credit card for a cash advance, however, will utterly destroy the sole purpose of a credit card.

Let’s say your credit card gives you 3% cashback and you purchase a bag for $500. 

If you pay for it the normal way – by charging the $500 directly to your credit card, you’ll essentially only have to pay $475 (you save $25 from the 3% cashback). On top of this, you’re also charging more to your credit card. This may entitle you to more perks as most credit cards have a minimum spend that you have to fulfill.

However, what if the store doesn’t accept credit and only allows you to pay in cash? You withdraw $500 from the ATM and incur the additional $30 (6% of $500). You then end up paying a total of $530 for the bag.

You’re essentially paying an additional $55 for the same purchase.

Worth it or not? We’ll let you decide!

5. Negative Impact On Credit Score

The cash advance balance automatically adds to your debt on the credit card. Thus, the debt will appear on your credit reports. In general, if your credit card debt is higher in comparison to your available credit, your credit score will be lower.

If your credit cards have high balances compared to your credit limits, a cash advance may negatively affect your credit score.

Let A Cash Advance Be A Last Resort

Using a credit card to withdraw money from an ATM isn’t difficult. This is provided that you’ve:

  • Got the right account type
  • Are in good standing with payments
  • Call the bank to ensure the account is set up correctly

What you shouldn’t forget is that a cash advance is one of the most expensive loans, and you should only consider it a last resort.

Alternatives To A Cash Advance

If the situation isn’t an emergency, you should consider borrowing the funds from a person you know.

An alternative would be to have someone you know wire funds to you. Provided you can pay the person back at an agreed date; this is a less expensive option for accessing a cash advance through a credit card.

If you don’t wish to harm relationships, taking out a personal loan from a licensed moneylender is also another viable alternative. At Lending Bee, we offer low interest personal loans to help you tide through any financial troubles that you might be facing. We pride ourselves in our simple and quick online loan application process so that you’ll be able to receive the cash that you require, quickly.