How Bad Are Credit Card Cash Advances
Did you know that when you withdraw money from an ATM using your credit card or use one of those checks that come in your monthly credit card statement, you can add an average of 24 percent to your annual interest?
Unlike using a credit card to make multiple purchases with an interest-free payback grace period, interest on cash advances made through credit cards start immediately. Most of the time because of the lack of consumers paying back the cash advance quickly, the interest can balloon out of control.
According to a recent survey done by CreditCards.com:
• Credit card cash-advance interest rates on average can range between 9.99 percent and 36 percent. Most however fall at about 24 percent.
• There is a 6 percentage point difference between interest rates on purchases made with a credit card and interest rates on cash advances made with a credit card.
• Most credit card companies charge a 3 to 5 percent interest rate on cash advances, with a $10 minimum charge amount.
Cash Advances with Credit Cards Are Rarely Used
According to the Consumer Financial Credit Bureau, 3.1 percent of active credit card account holders took cash advances out in a three-month period by the end of 2012. This number has gone down from the 4 percent it was four years ago.
Even though these credit card holders are taking out less cash advances in smaller increments, cash advance interest rates have continues to rise to the current average of 4.9 percent.
Cash advances should only be used in situations when you are left with no other options financially.
Why Are Cash Advance Interest Rates So High
Credit card lenders charge higher rates for cash advances than any other services because cash advances reflect a higher risk of not being repaid.
MasterCard offers an interest rate of 36 percent for cash advances. The rate on this card is so high because most consumers that use this specific card are in the process of rebuilding their credit history due to past bad financial choices and decisions.
Credit card lenders think of the high interest rates as an overall insurance on their investment. Many banks offer different tips and programs that help consumers to seek other options besides credit card cash advances.
Consumer Thought
Cash advance interest rates are often pretty high and can end up costing you hundreds of dollars more than other spending alternatives. The only upside is that cash advances on credit cards come out to be quite cheaper than they would if you received a cash advance through a payday loan as their rates are about 400 percent
April Lewis-Parks has more than 15 years of experience in the financial sector, she is a certified financial counselor, and a consumer affairs advocate. As the director of education and public relations for Consolidated Credit she is dedicated to generating awareness about personal finance issues and acts as their consumer affairs advocate. As host the of MissMoneyBee.com, she promotes financial education and offers timely and informative personal finance articles to educate the public. April’s promotional efforts can be seen in past issues of the New York Times, Washington Post, Newsday, Consumer Reports, the Business Journals, Money Magazine, Glamour, Cosmopolitan, Family Circle, among others. Connect with April on Google+.