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Credit Cards Carry Various Extra Fees On Cash Advance |
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There could be several extra fees on cash advance on credit cards which are often misinterpreted by consumers. On opening your credit card bill, you may find a convenience check attached. The amount may already be filled with $300, $500 or even $1,000. You may already be making mental notes on all the possibilities with this instant money, whether it could be a new summer wardrobe, dinner, concert tickets or a weekend getaway. However before setting out on a shopping spree, be aware than convenience check is merely equivalent to cash advance on your credit card.. Cash advance refers to a loan charged to your credit card. You have the option of getting a cash advance with a credit card, either at a bank or ATM or with checks linked to your credit card account. Cards mostly have a special fee for availing cash advance. This fee is derived from a percentage of the amount borrowed, which is normally around 2%-3%. Certain credit cards may charge a minimum cash advance fee of up to $5. For $20 in cash, you could be charged $5 making the fee 25% of the amount being borrowed. Most cards offer no grace period for cash advance. As a result, interest is charged every day until the repayment of the cash advance, despite lacking any outstanding balance from the previous statement. Some cards have higher interest rate on cash advance than on purchases. Therefore, ensure that the contract details of the card issuer are known. An example of possible charges on a cash advance of $200 that you pay on receipt of the bill could be as follows: Cash advance fee = $4 (2% of $200) Interest for one month = $3 (18% APR on $200) Total cost for one month = $7 ($4 + $3) Compare this to a $200 purchase on a card with a grace period without any charge if paid immediately in full. A Quick Look At The Fees Most Card Issuers Charge: 1. Upfront fees could be 2%-4% of the amount borrowed. This makes a $1000 cash advance charge a fee between 20% and 40%, apart from the interest charges. 2. Higher interest rate than purchases. Several companies charge at least 18% and more on cash advance. Also a majority of the companies apply only a small percentage of your monthly minimum amount due for the cash advance. Some may require you to first pay down the balance on your purchases first, before applying payments to the higher interest advance. This will result in making you pay fees and interest on cash advance for a long duration, particularly if making only the minimum payment. 3. Cash advance can usually lack any grace period with interest fees being charged from the moment the money is withdrawn or the convenience check cashed. The law requires your credit card company to reveal the fees for cash advance. To find out the fees charged, read your credit card statement closely or call the toll-free customer service to clarify doubts. There are two main reasons behind credit card companies charging these fees: to cover the transaction costs, which can often exceed regular credit card purchases, and to protect against the high percentage of defaults among credit card advance users. These costs are eventually passed on to consumers as fees and interest rates for the cash advance. It's important that you understand the fees and long-term impact of using credit card cash advance, each time you face temptation for cashing the convenience check or withdrawing money from the ATM with your credit card. The Bottom Line: Cash advance can usually be a lot more expensive than charging a credit card purchase. Cash advances are meant only for true emergencies. Don't ever think of credit card cash advance as free money and in terms of investment, there is no sure method to guarantee the success. Before making any investment, research is essential to be able to go about it in the best way possible. |
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