How does a Cash Advance Loan work
A short term cash loan using your credit card is termed as the ‘cash advance loan’. This loan can be got either from an ATM or even a bank. This cash advance needs to be repaid and thus, this is not similar to a withdrawal. You can say this is making a purchase of ‘cash’ with a credit card.
Working of the Cash Advance Loan:
There are times when you are faced with situations which require the payment to be made only in cash. This can be buying vegetables from a vendor or lunch from the canteen and so on. This is where you can use the cash advance loan. There are many who use this loan when they do not have enough cash in their accounts.
The PIN of the credit card can help you withdraw the cash advance loan directly from the ATM, or else you need to visit the bank which offers these cash advance loans. Here you will need your ID.
Most of the credit card companies do not allow the withdrawal of the total credit line in the cash withdrawal form. Most often these advances are capped at a few hundred. This means there is no way you can depend on your credit card to help you out in emergencies with a big amount.
Cash Advances are Expensive:
Getting cash advance is definitely a costly affair.
1. ATM and Bank Fees:
These fees are imposed by the financial institution handling the transaction that is the owner of the bank or the ATM handing out your advance.
2. Cash Advance Fees:
The card issuer imposes a cash advance fee. Some of the companies charge a flat fee for every cash advance and the others charge a certain percentage of the cash advance taken. This can go up to nearly 5%.
3. Interest:
You will have to pay the interest charged by the credit card company which is higher as compared to the interest charged on purchases. You need to be aware that the interest on cash advances tends to accrue on an immediate basis. There is no period of grace.
Paying off Cash Advance Balance:
When the cash advances have a different rate of interest from balance transfers or a purchase the monthly payment can be split among the different balances. If the minimum payment is paid, it is applied to the balance which has the lowest rate of interest. This depends on the issuer of the credit card.
The above minimum payment made is applied to the balance which has the highest rate of interest. This is likely to be the cash advance balance. If you have multiple balances you need to make a payment of more than minimum so that the balance of the cash advance is quickly reduced.
You can check the copy of the most recent credit card statement to check out the cash advance limit. This can be also done online. The limit of the cash advance is lower than the total limit if you have a balance on your credit card.
