Using your credit card to withdraw cash from an ATM can be an expensive undertaking. That’s why many experts caution against doing so, unless it’s an absolute, dire emergency or if you are in need of a very short term loan.
What you may or may not realize, is that every time you withdraw cash using your credit card you are subjected to a whole slew of additional fees:
- All cash advances are subjected to a fee that is between 2 and 4 percent of the total amount advanced. This is in addition to any interest charges. An average fee for a cash advance is $10 to $20.
- Cash advances accrue interest at a higher rate than regular credit card charges. The rates range, on average, from 1 to 7 percent higher than whatever the standard APR is on that card. Cash advance interest rates can climb as high as 40% or even higher, depending on the creditworthiness of the cardholder.
- There is NO GRACE PERIOD for cash advances. This means that interest begins accruing the very instant the cash emerges from the ATM.
- In most cases, card issuers make you pay off any purchase balances that exist on the card before they begin applying your payments to the higher-interest balance of the cash advance.
Card companies charge all of these extra fees for cash advances because a) the transactions are most expensive for them to process than purchase transactions and b) there is a greater likelihood for someone who frequently takes out cash advances to default on their payments.
Before withdrawing cash from your credit card in the form of an advance, stop and ask yourself if there is any other way to possibly handle the financial situation you need the money for. Consider whether or not you truly need what you are about to purchase or if it is simply an impulse buy. And if you feel there is no way to avoid taking a cash advance out form your credit card, then ask yourself whether you will be able to repay the money in a month, which is the only way to limit the exorbitant interest rate charges. You will be stuck paying the other cash advance fees no matter what.