When you need cash for an emergency or to pay bills, you might question if you can use your credit card to get it. A cash advance from your credit card is available from several credit card providers. While cash advances might be useful in an emergency, they also have certain disadvantages to consider. So, before you use your credit card to get cash, think about the benefits and drawbacks.
- A cash advance is a service provided by several credit card issuers that allows you to withdraw money from your card.
- You may be able to withdraw cash by depositing it in a bank account, using your card at an ATM, or writing a convenience check, depending on the card.
- Cash advances have higher APRs than purchases or balance transfers, and interest begins to accrue immediately. In addition, they frequently charge fees.
What are Credit Card Cash Advances and How Do They Work?
Credit cards are often intended to be used for making purchases. For example, you can use your card to pay for products in stores or online by typing in your card number and expiration date. Until you pay your credit card account, your available credit is reduced by the amount of purchases you make.
Cash advances made with a credit card operate differently. If your card enables it (and not all do), you may have two credit limits: one for purchases and one for cash advances, which is normally lower than the purchase limit. You're borrowing money against this credit limit when you get a cash advance.
Furthermore, unlike purchases, where you normally have a grace period of 20 to 30 days to pay off your account before interest begins to accrue, cash advances start charging interest right away.
A cash advance can be obtained in a variety of methods, including:
- Requesting a bank account cash transfer from your credit card
- Using an ATM to get cash
- Writing yourself a convenience check and cashing it at a bank
Why You Shouldn’t Be Withdrawing Cash from The Credit Card
You can, but that doesn't always imply that you should.
The first thing to mention is that using your credit card to withdraw cash is reported on your credit report. If another lender saw that, it would most certainly consider it a red flag.
It's likely that you're making the cash withdrawal because you don't have any money in your bank account and must rely on your credit card to pay for necessities.
If a lender searches your record because you applied for a loan and finds cash withdrawals, it may be a red flag that you can't manage your money, and it may raise concerns about your ability to repay the loan.
Withdrawing cash with a credit card is also costly. While this fact has no bearing on your credit score, it does have an impact on your money.
Credit Card Cash Advance Drawbacks
The Drawbacks are as follows-
Fees and Charges
A cash advance fee will be charged each time the facility is used, which will be followed by finance costs that will be charged from the date of the transaction until the complete payback is made.
While the interest rate on cash advances is identical to that charged on card transactions, the interest on cash advances is levied from the time the transaction is completed until the payment is made in full, making it costly.
Cash advances on credit cards are not eligible for reward points. Credit card cash withdrawals will not earn you any reward points, no of how large the transaction is.
Another aspect that contributes to the high cost of credit card advances is that interest is levied from the date of the transaction until it is paid in full. Cash advances have no interest-free period, and the interest will continue to accrue until the balance is fully repaid.
If your cash advance money is lost or stolen, you're out of luck. You don't have the same level of protection as you would if a credit card transaction went wrong.
When Is It a Good Idea to Take Cash Out of a Credit Card?
If you're in a financial bind, withdrawing cash from your credit card may appear to be a viable choice. It may be your only option if your car breaks down and you need to pay a tow truck business that does not accept credit cards.
However, if the case isn't urgent, you might want to look into alternative financial choices, as a credit card advance can be costly. Consider the following scenarios:
- Applying for a personal loan that is not secured
- Taking out a loan from a friend or family member
- A home equity loan is a type of loan that allows you to borrow money against your house's value.
- To raise funds, CDs may be liquidated or other assets may be sold.
Like a credit card cash advance, each of these solutions has advantages and disadvantages.
Should I Use My Credit Card to Make a Cash Withdrawal?
In and of itself, withdrawing cash on your credit card a few times a year for vacation shouldn't prevent you from applying for credit (though other lenders won't know why you're withdrawing cash).
This is because lenders do not decide whether or not to give you credit only on the basis of your credit history. Your lender will do a credit check on you when you apply for credit. However, it will consider everything you've said on your application form, as well as information from any other accounts you have with it, when making its decision.
There's little chance that the cash withdrawals will be the difference between a pass and a failure if you present yourself as the epitome of good financial management and the rest of your credit record is spotless (no missed payments or payday loans, both of which are red flags that you're in trouble).
While taking out cash from credit card offer some benefits, they can be pricey when compared to alternative options for borrowing money. Take some time to study your other options before agreeing to a credit card cash advance if you need money but it isn't an emergency. If you must use your card to withdraw cash, attempt to pay off the balance as soon as possible to avoid incurring interest charges.