Cash Advances on Credit Cards: The Facts

16 July 2009

Cash advances can be a massive financial savior when it comes to emergencies and unexpected expenses. However, this convenience is matched by the sheer expense of the cash advance itself which attracts very high interest rates, making it advisable to rarely use this feature of credit cards.

Banks and financial lenders will provide cash advances on all credit cards, but with a very high interest rate attached, normally around 20%. This is in addition to the immediate fee for cash advancing which will be approximately 2% of the total transaction amount or a simple flat rate. Furthermore, cash advances do not have any interest free periods meaning that interest is charged from the date of withdrawal, which can add up significantly over time if repayments cannot be made.

Furthermore, there are situation where a cash advance will cost even more than the interest rates already outlined. For example, taking a cash advance while overseas will incur even higher rates than if it is a domestic transaction.

The reasoning behind these large interest rates attached to cash advances is that cash advances are a form of financial security from the financial lender. However, cash advances can act as a vicious cycle as they are generally reserved as a last minute option for people who cannot afford an unexpected expense...but then are charged a high amount until it is repaid thereby being far more expensive than the initial cost.

There is a range of low cash advance credit cards available that are well suited to credit card users who know that they will often b using their cash advance option on their credit cards.

Cash advances provide an excellent financial back up plan for credit cards users, but they should be handled with caution and reserved for unexpected costs.

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