How come credit card cash advance interest rates are higher than the regular purchase interest rates? The Annual Percentage Rate (APR) on credit cards varies, depending on the type of charge being made to the account. Credit card companies charge different interest rates on purchases, balance transfers and cash advances. The credit card company is offering cash advances as a convenience for its customers, and may charge a fee in addition to a higher rate of interest than for purchases as a result.
Interest Rates on Credit Card Purchases
When a customer charges a purchase on his or her credit card, they have a certain number of days before they will be charged interest. This grace period varies, depending on the credit card company involved. It may be as long as 21 days in some cases.
If the customer pays for the purchase in full before the end of the grace period, they will not be charged interest on the purchase. A person who wants to buy something now and who knows they will have the funds available to pay for it within a week or two may want to take advantage of their credit card company’s policy to get the item or service without any interest being charged. Failing to make a payment before the grace period expires means the customer will be charged the full rate of interest on the unpaid balance.
A new customer may be offered a zero percent APR on new purchases made with their card for the first several months the account is open. Once the initial period has expired, an unpaid balance is subject to the normal interest rate charged on the account.
Interest Rates on Balance Transfers
Balance transfers are treated differently from new purchases by credit card companies. A new customer who transfers a balance from an existing credit card account to a new one may be able to take advantage of a lower interest rate or even zero percent interest by doing so. It’s a good idea to read the fine print before arranging for a balance transfer and it is always a smart thing to show around for the best balance transfer credit card offers by using our free credit card finder.
The offer of a lower interest rate may only apply to balance transfers arranged at the time the new credit card account is open. The new customer may be asked to provide the credit card account number and the amount he or she would like to transfer when filling out the credit card application form to get the preferred interest rate.
A balance transfer requested after the account has been opened may have a higher interest rate. To find out whether this is the case, read the terms on the monthly statement provided by the credit card company or contact them directly to find out.
Interest Rates on Credit Card Cash Advances
The interest rate charged on a cash advance from a credit card is charged from the time the company processes the request. It applies to cash advances taken from an automated teller machine (ATM). Some credit card companies offer convenience checks to their customers so that they have the flexibility to deposit them directly into their bank account or pay for products or services from vendors who don’t accept credit cards. Once the check has been processed by the credit card company, it is considered to be a cash advance in the same way that money withdrawn from an ATM is.
Once the cash advance has been made, there is no interest-free grace period. The customer pays interest, calculated daily, on the amount owing until it has been paid off in full. The cash advance may end up costing the cardholder a lot more in the long run because of the way credit card companies credit payments made on the account.
If the credit card company credits the cardholder’s account for lower-interest charges first, any payment he or she makes will go toward purchases first. The amount of the cash advance will continue to accrue interest daily as long as there are unpaid purchases on the account. Over time, the cardholder will end up paying a lot more than the original amount borrowed as a cash advance.
The key to avoiding paying more than you have to for purchases, balance transfers and cash advances on a credit card account is to compare interest rates for all three types of charges before making a final decision. It can seem overwhelming, but the credit card finder on our home page can help. It’s very easy to use. Why don’t you click on it right now to find the right credit card for your needs?
