Are cash advance credit card rates excessive?

cash advance credit card rates A credit card can be a handy little piece of plastic to have in your wallet, especially when you are strapped for cash. They are also quite handy at getting consumers into debt; with such ease and convenience, it is simple to utilize all of the features and transaction types that come with credit cards. One transaction that is easy to complete is the cash advance. Such a transaction appears as a quick way to get cash, but the excessive rates that go along with cash advances on credit cards will likely only create further debt.

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Cash advance rates are generally higher than the interest rates charged for purchases, and there are additional fees. These transactions also work a bit differently than purchase transactions in the way they generate interest charges. The bottom line is that the banks and credit card companies know that cash advances will generate a lot of income for them.

Understanding What a Cash Advance Is

A cash advance is when you use your credit card to get cash from an ATM or a bank. Rather than swipe your card to make a payment, you withdraw the cash amount from your available credit. This can be accomplished at an ATM or at any bank that issues your particular credit card.

Credit card cash advances are quick and easy, but they have great financial consequences.

Firstly, they usually have a high interest rate than the rate for purchases, and there are additional fees associated with the transaction. Furthermore, they also generate that high interest rate from the moment the transaction is complete rather than when your bill is due; there is no avoiding the interest by paying your bill during the grace period like with purchase transactions.

Moreover, certain transactions are also considered cash advance transactions rather than purchases. Using your credit card to buy lottery tickets, money orders, or traveler’s checks will be considered cash advances and charged the higher rate. Any transaction that is purely about money, such as those for gambling purposes, will be considered a cash advance.

One Trick to Watch For

cash advance credit card rate While not as popular as 0% introductory offers for balance transfers or low teaser rates for purchases, there are credit cards that offer 0% or low rates on cash advances for a limited time. While such an offer might seem like a good idea, the credit card companies and banks are betting that such offers will make them money in the long run. They usually are right, according to The Wall Street Journal’s SmartMoney.

Most people borrow money, such as with a 0% cash advance offer, thinking that they will be able to pay it off within the allotted time. However, they don’t take into account those emergencies or surprise payments that affect everyone from time to time. Then the cash advance balance doesn’t get paid in the allocated time and the excessive interest rates associated with cash advances start to generate debt.

Furthermore, cash advances also have fees on top of the interest rates; these fees are generally not waived during an introductory offer. Common fees are 3% to 5% of the cash advance balance or $10 whichever is higher. A cash advance of $500 can cost $25 before any other interest is added on.

Average Cash Advance Credit Card Rates

Credit card cash advance rates are generally higher than interest rates for purchases. BankRate calculated the average U.S. interest rate for fixed rate cards at 13.81% and at 14.55% for variable rate cards for the beginning of March 2012. Common interest rates for cash advances through Visa credit cards ranged from 19.24% to 24.9%. MasterCard rates for such transactions range from 19.24% to 25.24%.

Discover’s cash advance rates are a variable 23.99%, which means the rate will go up if the Prime Rate goes up.

So cash advance rates are over 10% higher than the average interest rates for purchases. A $100 cash advance will cost around $24 in initial interest rates and $10 in fees. Most would agree that paying an additional $34 on top of the $100 borrowed is too much. That doesn’t even take into account interest charges that may accrue on your credit card if you can’t pay off the cash advance balance in one billing cycle.

Avoiding Excessive Cash Advance Rates

There are tips and tricks to go along with most credit card transactions that can lower or eliminate interest charges, such as paying off your balance during your grace period to avoid generating interest. However, there is no way to avoid extreme cash advance rates other than to avoid the transactions altogether.

However, if you must use your card for cash advances, make sure you get the credit card with the fairest rates possible by utilizing the FREE credit card chaser tool now!