Credit card cash advance is essentially money borrowed from your credit card without doing a transaction. It might sound strange but many people use this feature to pay off some urgent expenses or anything unexpected.
Credit Card Cash Advance
As the name suggests, a credit card cash advance is a service offered by the credit card issuer that allows the user to get a cash advance from the issuer by using the credit card. It is in opposition to the inherent role or working of a credit card. Here instead of using the issuer’s asset and paying them back with cash at a later time you are getting money in liquid form from the issuer.
In simple words, you are borrowing the funds in liquid form from the credit card issuer to manage your financial expenses or commitments. It is just like when you use a debit card or ATM card to withdraw money from the bank or ATM. Instead of a prepaid debit card, you are using your credit card and line of credit as a means to get the cash advance. Cash advances can be in the form of cash, money orders, or travelers' checks which are considered the most liquid form of money.
Why get a Credit Card Cash Advance
You might be wondering why users need to get cash through credit cards when they can use it to pay their expenses. Well, there are many cases where the users need to get the cash advance to pay for their commitments where they can't use the electronic means of transaction. Some of the most pressing cases where users tend to withdraw cash advances include (but are not limited to):
In case of emergency, you have the only option to pay through cash so you hurry to get the cash advance.
You might need money to pay your monthly rent as the landowners in Canada do not accept rental payments through credit cards. You either have to pay it through a third-party app or you can get a cash advance. The cash advance option is much more convenient among the two as both involve an associated fee but there is no hassle in getting cash advances.
When users need cash for their expenses but have no other option to get a loan or line of credit to manage the expenses that need to be in cash form.
Credit Card Cash Advance Fees
Getting a cash advance from the credit card is nothing out of the blue. But you need to pay associated expenses to enjoy this facility of acquiring cash against your credit card in Canada.
Interest Rate: when you take cash advance in exchange for a credit card you are charged an interest rate on the withdrawn amount. You will be obliged to pay back the actual amount withdrawn along with any accumulated interest on the outstanding amount. The interest rate charged for credit card cash advances is usually very high compared to what is charged on standard credit card transactions. It implies that you will have to pay an elevated interest rate to get cash advances. The interest rate varies from credit card issuer to credit card issuer. But typically it can be as high as 16%.
Cash advance fee: along with the interest rate, you will also be charged a cash advance fee associated with each cash withdrawal. The fee is also charged following the amount of cash advance you have taken. The cash advance fee also varies from bank to bank but typically it is CAD 5 for cash advances within the territory of Canada and around CAD 7.5 for cash advances outside the Canadian border.
ATM fee: In case you are using any other bank’s ATM for cash withdrawal then you will also be charged an ATM fee that will be added to your outstanding debt. Therefore, it is better to find the ATM of the same bank whose credit card you are using.
Other Impacts of Credit Card Cash Advance
While getting cash advances you must know all essential factors associated with it. From the repayment procedure to the impact on your credit profile, you need to be aware of every aspect. Here are the major factors that you need to be aware of.
Repayment: You might be tempted to get the grace period to repay the cash advance loan. However, it is not going to happen because banks have different policies to deal with the debt related to cash advances. Typically there is no concept of a grace period for the repayment of cash advance. It implies that the interest rate will start to incur from the time you have withdrawn the cash advance against your credit card. Also, you need to repay the cash advance in full in the coming billing cycle, and that too with all relevant outstanding fees mentioned above.
Weigh all options: Before getting cash advances from credit card issuers, it is better to weigh all your options as the associated expenses are quite high. This is why you must have cross-checked the pros and cons of all available lines of credit to borrow money in cash. Use the cash advance feature only when it is utterly necessary.
Credit score: Getting a cash advance means that you are going to undertake a huge interest rate and cash advance fee (sometimes ATM fee too). This implies that getting a cash advance will raise your outstanding debt because of the high fee and high-interest rate. Therefore, it can affect your credit utilization by the accumulation of debt and the principal amount. This is why it can negatively affect your credit utilization. Credit utilization is an important factor in determining the credit score which shares your financial credit history with business persons in Canada. In short, getting a cash advance is not considered the ideal way to get cash in hand. It not only accumulates high interest rates but you also need to be careful of its negative impact on your credit score. A low credit score will cause trouble for you when you try to get a loan or credit card in the future.
Credit limit: The rule of credit limit also applies to cash advances. If your credit limit for a month is set at CAD 3000 and you have already purchased things for CAD 2000 then you will have the cap of only CAD 1000 to get cash advance in case of need. You cannot exceed the credit limit and claim that your cash advances should be treated separately from your outstanding debt from purchasing.
No reward accumulation: You won't get any related rewards and benefits for the cash advances you have taken from the credit card. It implies that you cannot collect points for later redemption.
Pros and Cons of Getting Credit Card Cash Advances
Multiple pros convince the users to get credit card cash advances. But along with some popular pros, there are some cons that you need to consider before withdrawing cash from a credit card.
Credit card cash advances are instant. You won't have to ask for a loan or spend time finding a line of credit for your emergency needs. Rather all you need to do is to visit an ATM and withdraw money just like you do with a debit card. The ease and convenience a great pros of getting cash advances.
It is a cheaper option to borrow cash than some other loan forms such as payday loans or non-traditional loans. At least you are already aware of the interest rate and the relevant fees so that there are no surprises when it comes to repayment.
It can be expensive and costly to get cash advances on credit cards as you are required to pay high-interest rates and associated fees.
You won't earn any rewards on the cash advances which implies that it won't offer any benefit to you.
You won't get any additional grace period for repayment and are subject to return the amount in full in the next billing cycle.