Cash advances

Many credit cards give an option to get cash advances through ATMs.  This can sometimes be a bad option.

Credit card cash advances do not work in the same way as other credit card transactions.  As there is no merchant fee then the charges tend to be more transparent.  There is rarely an interest free period for cash advances, which means that interest on the credit card rate will be charged from the first day that it is withdrawn.  In practice this can make the credit card interest far higher than the other transactions as many people pay off the balance as soon as they receive a statement.  They tend to believe that the credit card is not charging any interest, but this will not be the case if there are any cash advances.

Cash advances can also have a higher interest rate than other credit card transactions such as balance transfers and spending on the credit card. They rarely feature in any offers of low interest or interest free periods that balance transfers and new spending can attract. This effect is amplified by the fact that the cash advances are often paid off after the other credit card balances are cleared, meaning that the interest has longer to run up.  This can be mitigated by using cards without a balance, as any payments on the card will go towards paying off the cash advance. This practice has largely been outlawed by the Credit Card Act 2009.

Many credit card cash advances also have an upfront fee, either for the use of the card in the machine or for using a cash advance.  Some ATMs warn borrowers that this fee will be charged, but that is not always the case.

Credit card cash advances do not tend to be allowed to be taken up to the whole of the credit limit.  Instead only a percentage of the credit limit is made available for cash advances, and this depends on factors such as the credit score.  The cash advance limit should be made clear on the credit card statement along with the overall credit limit.

Credit cash advances don’t just apply to when a credit card is used to take money out of an ATM.  Credit card checks are also counted as cash advances, as are payments of credit cards towards gambling which includes spread betting as well as more recognized forms of gambling.