Should I Use My Credit Card for a Cash Advance?

Getting a cash advance can be very expensive. But it might be better than some of the alternatives.

It depends. Cash advances are expensive. But it might be better than other options -- like pawnshops, payday loans, and tax refund anticipation loans.

Interest and Fees When You Get a Cash Advance

Using a credit card to get cash advances, or using “convenience” checks a card issuer sends you, can be very expensive. Here's why:

Additional transaction fees. Most banks charge a fee of up to 5% or so for taking a cash advance. Some waive the fee on convenience checks.

No grace period. Most banks charge interest from the date the cash advance is posted, even if you pay it back in full when your bill comes. A few banks give grace periods for convenience checks.

Very high interest rates. Usually credit card companies charge very high APRs for cash advances. APRs of 25% are not uncommon.

How Do Cash Advances Compare to Other Alternatives?

Even so, a cash advance may have a better rate than if you were to use a pawnshop or get a payday loan or refund anticipation loan. If you cannot get a loan with a lower interest rate, it may be a good alternative. (Learn more about the downsides of pawnshop loans, payday loans and tax refund anticipation loans.

Comparisons are difficult. The catch is that with a cash advance you pay both a fee and interest, so the interest rate (APR) doesn’t really tell you the full cost for comparison.

For example, say you get a cash advance or use a convenience check for $500 and the company charges a 5% fee plus an APR of 25% from the date of the transaction. You will pay a $25 fee, plus about $10.42 in interest, for a total of $35.42 (assuming you pay it off within one billing cycle). That amounts to an annual percentage rate of about 85%!

(For more articles on using your credit card wisely, visit our Using Credit and Debit Cards topic area.)

This is an excerpt from Solve Your Money Troubles, by Margaret Reiter and Robin Leonard (Nolo).

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