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The True Cost of Cash Advance
In order to make more money, credit card companies are offering more and more features and services for their customers, such as cash advance and super checks. While these services are ostensibly for your convenience, they are actually best at getting more money from you in fees and interest.
Credit cards biggest liability is how much they resemble their considerably less harmful cousins the debit card. For example: credit card cash advances. Sliding your credit card into an ATM and pulling out some cash may feel as harmless as debiting it from your checking account but really, you've just signed yourself up for a rollercoaster of fees and interests.
Using a debit card to get cash
Although the physical act of withdrawing money from an ATM with a debit card or a credit card seem very similar, the technical details involved mean you end up paying a lot more. Here's what happens when you withdraw money from an ATM:
- You deposit money into your checking account
- You use your debit card to get cash from an ATM
- The amount you withdrew from the ATM gets deducted from your checking account
- If you don't have enough funds in your checking account, your transaction is rejected or you get charged for an overdraft
- You replenish your checking account as you see fit
End of story. The only transaction that happens when you use a debit card in an ATM is that you are accessing money that you have stored away. You won't be able to pull out more than you have in the bank, but you also won't be obligated to pay anyone back but yourself.
Using a credit card to get cash
Getting cash out of an ATM with a credit card is a whole different endeavor. Firstly, the money that you are pulling out of the ATM is not even your money. It is being loaned to you from your credit card company, thus it is subject to interests and if you don't pay it back on time, late fees.
From the moment you withdraw money from an ATM, you will probably be charged a "processing fee." Depending on your bank and which ATM you are using, you may get two or three fees for one transaction. If you are not a member of a certain bank and you use their ATM, they will charge you a fee. Also, your bank might charge you a special fee for using an ATM other than theirs. Plus, there might be a general fee for cash advances that gets tacked on as well. So, worst case scenario, you could be end up paying up to $10 extra right off the bat.
After you are charged for your various fees, (not to mention however much money you pulled out of the machine) your credit card begins charging your interest. But since you are using cash advance instead of a normal transaction, you may have different terms. Whereas you won't be charged any interest on your normal balance until the end of the month, most cash advances have no grace period. That means that from the second you get the money out of the ATM, you are being charged interest. So, if you don't pay off your credit card balance until you get your statement in 14 days, then you'll have 14 days worth of interest on your cash advance to pay.
But things get more slippery from there. Credit card companies structure their payment schedules so you have to pay off normal purchases --before- your cash advance begins getting paid off. For instance, if you used your credit card to buy a trampoline for $1000 on Wednesday, and then got a cash advance for $60 on Thursday, you would have to pay back that first $1000 before you began chipping away at your $60 cash advance.
To make matters worse, the interest rates on cash advances are often much, much higher than your normal interest. While you take several months to pay off your bigger purchase with normal interest rates, your tiny cash advance will be boiling over on the backburner in the meantime.
Some credit card companies offer a similar feature, called super checks. For the most part, the only "super" thing about these checks is the fees and interest rates. They function much the same as a normal check would, except instead of withdrawing money from your account, you are borrowing money from your credit card company. And for this service, your credit card company charges you extra fees and a special interest rate on how much you borrowed.
So, next time you are out on the town and desperately need cash, consider asking your buddy to spot you some bills before turning to the ATM with your credit card. Better to be thought a scatterbrained mooch than end up paying hundreds of dollars for a night out on the town. Writing out a super check or using the cash advance on your credit card might mean you pay tenfold for your cash.
About the Author:
Paul Basco Provides Expert opinions and reviews to help you Compare and Apply for a Credit Card - Compare Credit Card Offers with GettingaCreditCard.com - Unraveling the best in Personal and Business Credit Cards.
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