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A credit card can be a great source of cash if you need it. Learn how to get a cash advance on a credit card and how to be smart with it here.
You use your credit card at the checkout and online, but did you know you can use it as a source of cash?
A credit card cash advance allows you to withdraw a percentage of your credit limit in cold, hard cash. You can get it from the teller at the bank that manages your credit card or request a PIN to hit the ATM.
However, getting a cash advance differs from swiping your credit card. If misused, it can transform your credit card from a helpful tool into a monthly nightmare.
Here’s what you need to know about how to get a cash advance on a credit card (and how to pay it back).
Can you get a credit card cash advance? Your credit card agreement spells out the answer.
If you don’t have the original agreement, log-in to your online banking portal and download it a second time. Can’t find it? Request a new copy from your bank.
Under the credit line section, you’ll see two numbers: your total credit line and your cash advance credit line.
If you have a cash advance credit line available, it will be a fraction of the total credit line.
Your cash advance line is part of your total credit line–not an addition to it. If you have a $500 cash advance line, but only $300 available on your entire credit card line, then you can only take out $300 in cash.
To access your credit line, you need access to your PIN.
You may do this one of two ways depending on your card provider. Most banks now allow you to do this online. However, other banks may require you to call customer service to request your PIN. Either way, your PIN will arrive in the mail.
No matter what credit card you have, you need to know that your cash withdrawal differs substantially from a typical swipe transaction.
Credit card cash advances usually come with two fees: an upfront transaction fee and an interest rate.
Let’s start with the transaction fee.
For the privilege of taking out cash, you will either pay a percentage of the transaction or a flat fee. You need to know what this fee is and factor it into your withdrawal. Not only is it one more item to pay back, but it will remove the remaining credit you may count on to do things like pay bills.
Most companies charge around 5 percent of the transaction or a fee of $10. The greater of the two applies based on the size of your withdrawal.
So if you take out $50, then your fee would be $2.50. But if you ask for $500 in cash, your payment is $25.
A credit card cash advance almost always comes with a higher interest rate than your total credit line. And if you are in an introductory period that offers a reduced or zero interest rate, then it likely doesn’t apply to your cash advance.
You might think that paying off the cash advance at the end of the month will save you the hassle of the higher APR. However, your credit card doesn’t work that way.
When you make a payment, you pay off the oldest balance first. To pay off your cash advance, you generally need to pay off your card balance in its entirety.
Plus, credit card companies typically start counting interest the day you take the cash out. If you take out a cash advance on the first day of your billing cycle, you will pay a month’s worth of interest if you don’t pay it off until your due date.
The final fee is the ATM fee.
If you use an American card, you already know that using an ATM outside your network comes with a fee between $2 and $10, depending on who owns the ATM.
If you use the ATM to withdraw your cash advance, keep the fee in mind when you calculate your balance and your budget.
The combination of all the fees and the interest means that a cash advance works best when borrowing a quick $40. Borrowing hundreds of dollar quickly adds up and puts you at a disadvantage from the day you borrow.
As a result, the best and safest way to use a cash advance is only to borrow what you can pay back after your next paycheck.
A cash advance isn’t a long-term loan or credit option. You need to pay it off fast–as in days, not weeks or months.
Paying it off quickly is the best way to avoid the combined high-interest rates, which turn your one-time need into a month’s long battle.
If you can, don’t wait until your next due date to pay it off. Do it as soon as feasibly possible to avoid growing your balance.
In some cases, a personal bank loan or collateral loan are better alternatives. Both of these loans offer a higher limit and fairer interest applications, which means it will take less time to pay off and cost you less in the long run.
Keep in mind that both these loans also include fees. However, the fee tends to be lower than that of a cash advance once you reach the higher figures. You can also avoid the ATM fees, which saves you at least a bit of cash.
Now you know how to get a cash advance on a credit card, but remember, it’s best suited for those who need to borrow $100–not $1,000. Borrowing large lump sums becomes expensive very quickly because the interest rate is not only high but the bank applies it immediately.
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