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How Cash Advance Works on Credit Cards

Everyone has need for cash every time! Unfortunately, not everyone has access to cash at every time they need it. A good example is salary earners. Most of them need cash sometimes to meet up with important obligations before payday. It’s not every time that you need cash that you run to the bank for a loan; you can get small amounts to fulfill pressing obligations from other sources and cash advance is just one of those sources.

A credit card is an easy way to pay for goods and services, and it can help you borrow money conveniently. Credit cards are issued by banks, credit card companies, credit unions, and other financial institutions in partnership with credit card networks such as Mastercard and Visa. Credit card issuers and networks all provide a global payment network that makes credit cards a convenient option to pay for things at accepting merchants all over the world.

A credit card can also be used to borrow money for purchases and cash advances. Each month, you are required to make a minimum payment of 2% of the closing balance or $10 (whichever is greater) plus the greater of any unpaid past due amounts from previous statements or any amount that exceeds your credit limit. If the amount is less than $10, you will be required to pay the full closing balance.

If you don’t pay your account in full each month, the outstanding balance will be carried over on your account. If applicable, you will pay interest on each statement cycle at the statement date. So, the interest you will be charged is a proportion of your balance that doesn’t get paid in full as well as other specified purchases.

Your credit limit is the maximum amount of money you can spend using your credit card. Usually, you will set this limit when you apply for your card. If you exceed your credit limit, most credit cards will penalize you for this by charging a specified fee for each $100 you spend above your credit limit.

With your credit card, you can make purchases in person, over the phone, at the ATM, or online. Now, there’s contactless technology, which allows you to make purchases of under $100 without entering your PIN or sign. Simply hold a Mastercard or Visa Card against the contactless terminal and your desired transaction will be completed. Enough said on credit cards and how they work. Now, let’s talk about cash advance.

What is Cash Advance?

A credit card cash advance is a cash withdrawal you make from your credit card account. It is like a loan taken from your credit card In essence, you are borrowing against your credit card to get some cash in your pocket, which can be convenient at times when you are short of funds. Unlike a regular bank loan where you have to file applications and submit documents, all you have to get cash advance is to use your credit card to borrow money.

Usually, you can withdraw cash against your credit card account to a certain limit. This could be your card’s credit limit or a percentage of it.

How Does Cash Advance Work?

Cash advance loans are also known by different names such as payday loans or short-term loans. They are designed to help people with cash to meet up with emergency bills without going through the formal process of applying and negotiating for loans. Borrowers can get as little as $50 and as much as $1,500 to meet short-term needs. There are three major ways to get cash advance with your credit card. They include-:

a. Automated Teller Machines

You can get cash advance using your credit card on an ATM machine. This is the most convenient way to get cash advance. First, you have to obtain your Personal Identification Number (PIN) from the credit card issuer once you obtain your card. Then you should verify your credit limit because the amount to be obtained must be within your credit limit to avoid over-limit charges.

Next, you should head out to an ATM machine, insert your card into the machine, enter your pin and then select the amount you want to obtain. There may be a surcharge for using the ATM which you must accept unless the request would be declined. When you accept the surcharge, your request would be accepted and you will get cash; it’s as simple as that.

b. Bank

You can also get cash advance from the bank. To do that, just locate any bank that displays the sign of your credit card issuer. For instance, if your credit card issuer is MasterCard, look for a bank that displays the MasterCard sign. You don’t need to have an account with the bank to get cash advance.

All you need to do is to present an identification card along with your credit card to the teller. He/she would give an authorization form to fill and run your credit card through the system to determine your eligibility. If you are eligible, you would be given cash advance and charged an interest rate which is usually between 20 and 25% of the borrowed amount.

c. Purchase

You can also get cash advance through retail outlets by obtaining cash backs.When you make a purchase at a retail outlet such as a grocery store or supermarket, you can receive cash back in the amount of $200 per day. This limit could be more or less, as it varies from retail outlet to retail outlet. How much you can get does not depend on how much you spend on your purchase, but you cannot exceed the daily limit set by the retail store.

This type of cash advance attracts no fee, and you will not be required to pay any interest on it. However, there’s one condition you must meet to get it: you must make a purchase at the retail outlet, even if it’s just a $10 purchase.

d. Cash Advance Checks

You can also use the cash advance checks presented to you by your credit card company to obtain cash advance from the bank. These checks look like personal checks and can be used in the bank the same way regular checks are used. You can get cash advance checks from your credit card company upon request. Some credit card merchants even issue it without request but you are not in anyway obligated to use it if you don’t want to.

Benefits of Credit Card Cash Advance

1. Quick Loans

Cash advance makes it easier to get physical cash to meet up with emergency needs. You don’t go through all the long processes of applying for a bank loan.

2. Increase your Cash Flow

If you are a business owner, you would need cash from time to time which may not always be available. Cash advance helps you to get easy access to cash to meet urgent business needs. However, a lot of financial experts discourage their clients from using credit card cash advance. Some of the reasons for their distaste for this system include-:

  • Excess interest and Charges

You get charged a lot of fees for taking cash advance. For instance, you could be charged a 2-4% cash advance fee and then another $2 -$4 fee for ATM usage. You would also be charged a higher interest rate than when you use your credit card to make purchases. Also, the interests start counting from the day you obtain the cash, meaning that there is no period of grace and you get to pay a full month’s interest rate even if you repay the cash advance on your due date.

  • It leads to defaults

Cash advance also increases rates of credit card defaults. Financial experts argue that people who obtain cash advances are more likely to default on credit card repayments than people who do not and this is quite understandable considering the high charges and interest rates.

  • No period of grace

For credit card purchases, you get some period of grace before interests start to accumulate and if you pay off the money fast enough, you don’t get to pay interests but for cash advance, the interests start to accrue immediately.

  • You pay everyone

When you obtain cash advance, the credit card company isn’t the only one charging you. You get charged by the bank for assisting you, you get charged for using the machine and of course, you get charged by the credit card company as well.

7 Smart Ways to Use Credit Card Cash Advance

Whenever you want to use your credit card cash advance option, you must first do a cost-benefit analysis. You must be aware of all the charges you would have to pay and compare it to the benefits you would derive from obtaining the advance. If the former outweighs the later, then it’s better to go for other means of obtaining cash, Other tips to help you obtain cash advance without running into problems include-:

  • Ensure that you read and carefully understand your credit card agreement with regard to fees and charges.
  • Use your cash advance option for serious emergencies when there is no other source of getting cash.
  • Don’t exceed your cash advance limit because it would attract higher charges and interests.
  • Withdraw little amount of money at a time and ensure that it is just what you need.
  • Make sure you use a credit card with$0 balance.
  • Repay your cash advance as soon as possible.
  • Explore other ways to get cash like borrowing from friends and family.