When most people think about credit cards, they often focus on the convenience of making purchases without having to carry cash. But credit cards can offer more than just a cashless way to pay. Some credit cards also allow you to access actual cash when needed through a feature called a cash advance.
A cash advance is a service that allows you to withdraw money from your credit card through an ATM. It can be a helpful option during emergencies, especially when no other source of cash is readily available. However, the ease of withdrawing cash anytime should not overshadow the fact that cash advances come with their own set of conditions. You’ll want to understand these details before using this feature so that you can use the service responsibly and avoid putting unnecessary strain on your budget.
Here are six key things you need to know about cash advances before withdrawing any money from the ATM using your credit card:
1) Check if Your Credit Card Has a Cash Advance Feature
Before planning to withdraw cash, it’s important to check if your card is a cash advance credit card, meaning that it allows you to access a portion of your credit limit as cash. Keep in mind that not all credit cards are designed with this feature, and some may have limitations depending on the card type or the policies of the issuing bank.
You can find this information in the terms and conditions that came with your card, through your online banking app, or by calling your card issuer’s customer service. If you want to be able to use such a feature in the future, you can sign up for a card like the Landers Cashback Everywhere Credit Card by Maya.
2) Understand the Costs and Fees
Another detail you should be aware of when considering a credit card cash advance is that it’s not as cost-effective as making regular purchases with your card. Credit card issuers often charge significantly higher interest rates for cash advances compared to standard purchases.
While you may enjoy a grace period on regular purchases, cash advances begin to accrue interest immediately. This means that from the moment you withdraw the cash, interest starts piling up, and it only stops once you repay the amount in full.
In addition to the high interest rates, there are usually transaction fees attached to cash advances. These fees can either be a flat amount or a percentage of the total amount you withdraw, often ranging from 3% to 5%.
Furthermore, keep in mind that if you withdraw cash from an ATM that is not part of your bank’s network, you might be subject to additional ATM fees. These charges can quickly add up, making a cash advance a much more expensive option than it might seem at first.
3) Know Your Credit Limit for Cash Advances
It’s also good to know your credit card’s cash advance limit. Typically, it’s lower than the total credit limit for regular purchases, and the exact amount depends on your credit card issuer.
This lower limit means that you may not be able to access as much cash as you might expect, so you’ll need to check the specific terms of your credit card. You can find this information on your monthly statement or by calling your credit card provider.
4) Find Out Your Cash Advance PIN
Before you can make a cash advance using your credit card, you’ll need to know your cash advance PIN, which is a personal identification number required to complete the transaction at an ATM. Many banks and credit card issuers assign a default PIN when you first receive your card. It’s usually indicated in the terms and conditions or on welcome materials provided with your credit card.
While you typically have the option to change this PIN to something more memorable or secure, the default PIN may still be required the first time you attempt to update it or make a cash advance.
5) Borrow Only When Necessary
A credit card cash advance can seem like an easy way to access funds, but it should only be used in emergencies. Relying on cash advances regularly can lead to a cycle of debt that’s difficult to escape. The high interest rates and fees mean that borrowing from your credit card can quickly become more expensive than other alternatives.
When possible, consider whether you have other financial options. For instance, personal loans or digital bank loans might offer lower interest rates and better repayment terms.
6) Prepare for Repayment
One of the biggest pitfalls of cash advances is the lack of a grace period. Credit card purchases may give you time to pay off your balance before interest accrues, but cash advances start accruing interest immediately. This means that the longer you take to repay the borrowed amount, the more interest you’ll pay. As such, it’s essential to have a clear repayment plan in place before you take out a cash advance.
First and foremost, it’s a good idea to pay back the cash advance as quickly as possible to minimize the interest you’ll be charged. If you only make the minimum payments, a large portion of your payment will go toward interest, leaving little to pay down the principal balance. To avoid this, prioritize paying off the cash advance and consider using any extra funds to make additional payments.
Before withdrawing any money from your credit card, you’ll want to know the ins and outs of cash advances. Understanding what comes with the convenience of getting cash will empower you to make the wisest possible decisions, not only for the time you actually need the cash but also for your long-term financial future. Clarify things with your issuer, and ensure that your next cash advance will work in your favor rather than against you.