When you hear the term “cash advance fee,” what comes to mind? If you’re like most people, you probably think of it as a fee charged by a credit card company for allowing you to withdraw cash from your credit card.
While that’s technically true, there’s a lot more to the cash advance fee than meets the eye.
What is a cash advance fee?
A cash advance fee is a charge assessed by a credit card issuer when a cardholder uses their credit card to obtain cash. Cash advances can be made through ATM withdrawals, bank teller transactions, and by cashing traveler’s checks. The fee for a cash advance is typically a percentage of the total amount withdrawn, with a minimum charge Determined by the credit card issuer.
How do cash advance fees work?
The fee is usually a percentage of the amount you withdraw, plus a flat fee. For example, if you withdraw $100 from an ATM, you might be charged a $3 cash advance fee ($2.95% of the amount plus a $0.05 flat fee).
Some credit card issuers also charge a separate transaction fee for cash advances. This transaction fee is usually around 3%. So, if you withdrew $100 from an ATM, you could be charged a total of $6 in fees ($3 cash advance fee + $3 cash advance transaction fee).
Cash advance fees are generally higher than the fees charged for regular credit card transactions. That’s because cash advances are considered high-risk transactions for credit card issuers. When you get a cash advance, you’re typically borrowing money that you will need to repay with interest.
Some credit cards have promotions that offer 0% APR on cash advances for a limited time. But keep in mind that if you don’t repay your entire balance before the intro period ends, you will likely be charged the standard APR for cash advances, which is typically higher than the APR for regular credit card transactions.
How can you avoid cash advance fees?
There are a few ways to avoid cash advance fees. You can use a credit card that doesn’t charge a fee for cash advances, or you can get a cash advance from a bank that doesn’t charge the fee. You can also use a prepaid debit card to get cash advances, but you’ll likely pay other fees with this method. Finally, you can avoid the fee by taking out a loan from a friend or family member.
What are some alternatives to taking out a cash advance?
There are a few alternatives to taking out a cash advance that can be just as costly, if not more. These include:
- Borrowing from a friend or family member: While this may be an option for some, it can often lead to tension and conflict if not done correctly.
- Using a credit card at an ATM: This will almost always incur additional fees from both your credit card company and the bank that owns the ATM.
- Taking out a payday loan: While these loans may seem like a good idea at the time, they come with extremely high interest rates and fees that can quickly trap you in a cycle of debt.