Credit cards come packed with a plethora of enticing features, each designed to enhance your lifestyle with convenience and luxury. These features span a wide spectrum, including perks like international transaction privileges, reward points programs, cash advance options, access to exclusive lounges, concierge services, and much more. The array of benefits you receive typically depends on the type of credit card you hold. However, among this array of features, there is one that often piques the curiosity and excitement of cardholders – the cash advance.
The cash advance feature, while resembling an ATM withdrawal made with a debit card in some aspects, has a critical distinction. When you withdraw money with your debit card, it’s your own funds. However, when you use your credit card for a cash advance, the money you’re accessing belongs to the bank, and it remains their property until you fully repay it. This feature doesn’t arrive solo; it brings along its companions in the form of cash advance fees, interest rates, and assorted charges. Given these financial implications, it’s often wise to exercise caution and refrain from utilising the cash advance feature unless it’s absolutely necessary, as cash might not be your highest priority in terms of credit card usage.
Basic Do’s And Don’ts Of Cash Withdrawal Feature
Do’s
- Reserve cash withdrawals for genuine emergencies, avoiding them in routine situations.
- Opt for cash withdrawals at your own bank’s ATMs to bypass transaction fees imposed by other card providers for their services.
- Prior to making a cash advance, verify your credit card’s cash advance limit to ensure you’re within the approved range.
- Exercise due diligence by thoroughly reviewing the essential particulars and the associated interest rates linked to the cash advance feature before proceeding with any withdrawal.
Don’ts
- Avoid making cash advances a regular practice, as it can lead to financial pitfalls.
- Steer clear of delaying repayments for cash advances, as accumulating interest rates will only compound the financial burden.
- Refrain from taking cash advances if you already have an existing outstanding balance, as it can further complicate your financial situation.
What is the expense associated with utilising the cash advance feature on your credit card?
Determining the precise cost of a cash withdrawal can be a daunting task, primarily due to the varying interest rates assigned by different banks to their assorted credit cards. While some banks may apply similar cash advance fees across a range of their credit cards, variations still persist between different banking institutions. Premium credit cards often stand out as exceptions, offering cash advance transactions devoid of any additional fees. In essence, when you engage in cash advances, there are typically two types of charges imposed in addition to the withdrawn amount.
- Daily Interest Rate: When you opt for a cash advance, be prepared to shoulder daily interest charges, as dictated by your bank. These charges commence from the day you make the cash withdrawal, leaving no room for a grace period or interest-free window. What’s worth noting is that the interest rate on cash advances tends to be notably higher than that applied to standard purchases. This underlines the utmost importance of understanding the associated costs from the outset.
- Cash Advance Fee: The bank imposes a cash advance fee, typically either a percentage of the withdrawn amount or a fixed sum. The type of fee you’ll face hinges on the withdrawal amount itself. This fee essentially serves as the cost for utilizing the cash advance feature, and it recurs each time you use your credit card at an ATM.
These charges differ from those typically incurred during regular purchases. Importantly, the cash advance feature lacks the usual grace period or interest-free window commonly found in credit card transactions.
How often should you withdraw cash with a Credit Card?
In ordinary circumstances, the suggestion to utilise the cash advance feature of your credit card is a rarity. Typically, it’s a resource to be reserved for genuinely urgent situations. This hesitancy arises from the fact that employing the cash advance feature comes with a price tag in the form of various fees, rendering it an expensive option.
However, the cost is not the sole reason why cash advances are discouraged until it’s absolutely necessary. Another significant factor is that each cash advance leaves a mark on your credit report. Your credit report serves as a comprehensive record, encompassing not only your financial history but also the details of any cash advances taken and the associated interest rates. Consequently, when lenders assess your credit report, a frequent use of cash advances can raise concerns about your financial stability and cash flow, potentially diminishing your overall creditworthiness in their eyes.
In summary:-
The cash advance feature offered by banks is just one among several features they provide. It allows you to access cash as needed, offering a valuable lifeline during emergencies. However, this convenience comes with certain constraints, primarily because the feature can be quite expensive. Cash advances entail repaying the withdrawn amount along with cash advance fees and daily interest charges, which are applied to the initial sum.
In simpler terms, cash advance transactions involve multiple associated fees. Consequently, it’s a feature best used sparingly, given its substantial cost and the potential implications for your credit report. Entries related to cash advances on your credit report can raise questions about your creditworthiness. Therefore, exercising caution and gaining a thorough understanding of the feature’s terms are crucial for responsible and efficient credit card usage.