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Why cash advances are a bad idea

Why cash advances are a bad idea

High transaction fees on the cash advance: You are usually charged a fee upfront based on the amount of the cash you borrow. These charges are covered in the terms and conditions part of your credit card agreement. Different lenders charge different fees—it is best to contact the customer care of your lender in order to know the up-to-date charges
No grace period: When you make a purchase with your credit card, your lender won’t start charging interest right away. There is usually a grace period of at least 25 – 30 days. A credit card cash advance is different. When you borrow cash from your credit card issuer, they start charging you interest immediately, so the interest charges add up swiftly.
High interest rates: Credit card advances are notorious for their steep APR rates. Depending on your lender, it could be as high as 25% and even more. Banks typically charge a rate of interest of 2.5% to 3.5% per month. Also remember, there’s no grace period. So you’ll start getting charged interest at this high rate right off the bat.
Bad sign for lenders: Taking a cash advance is a bad idea, as it indicates to your lender that you are a risky borrower. If your lender sees you’re using cash advances, you might get flagged by their risk models. If they see you as risky, you might not be able to get credit when you may need it in the future. You may find it difficult to open a new line of credit or be charged a high interest rate. Your lender may even apply a higher interest rate to your balance going forward.
Negatively impacts credit score: Your cash advance balance adds to your credit card debt. This debt shows up on your credit reports. The higher your credit utilization ratio and the higher your credit card debt is compared to your total available credit, the lower your credit scores will be. If you already have high balances on your credit cards compared to your credit limits, then cash advances can make your credit score go for a spin.


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