Have you ever found yourself in a financial bind and considered taking a cash advance on your credit card to cover your hefty expenses? While it may seem like a quick and easy solution, it's important to understand its potential drawbacks. Let's delve into five top reasons why taking a cash advance on your credit card can impact your financial capability.
Credit card cash advances? A Big No!
High-interest rates: Cash advances on credit cards typically have higher interest rates than regular purchases, meaning you may end up paying more interest charges over time.
Additional fees: In addition to the high-interest rates, many credit card companies charge additional fees for cash advances. These fees can be as high as 5% of the amount advanced, which can add up quickly.
No grace period: Unlike regular credit card purchases, cash advances do not have a grace period before interest starts accruing. This means that interest starts accruing immediately, even if you pay off the balance in full by the end of the billing cycle.
Negative impact on credit score: Taking a cash advance on your credit card can negatively impact your credit score. This is because high balances and high utilization rates can lower your credit score.
The cycle of debt: Taking a cash advance can create a cycle of debt that is difficult to break. If you are unable to pay off the balance in full, you may be tempted to take out another cash advance to cover the first one, which can lead to a cycle of debt that is difficult to escape.
When and how can you get a cash advance on a credit card? Emergencies only!
The 5 reasons stated above are why you should avoid taking a cash advance from your credit card, unless faced with an absolute emergency and you're in need of some extra or instant cash. Here are some tips to keep in mind if you ever consider taking a cash advance on your credit card:
Repay the cash advance off your credit card as soon as possible. The sooner you repay, the lower the charges and the longer you wait after withdrawal, the higher the charges.
Try using a low-interest credit card. Compare the interest rates of different credit card issuers, and pick one with a lower interest rate to save some money. You can check the interest rates and cash advance APR with your credit card issuer.
Always check how much your credit card issuer charges as cash advance fees and the available credit limit before you take out cash using your credit card.
Never share your credit card PIN or leave your credit card bill unattended as it's easy for anyone to withdraw a cash advance using your credit card details at an ATM.
Best alternative to a cash advance? Try Personal loan
If you find yourself in need of funds to cover unexpected expenses or to make a large purchase, you may be wondering about your borrowing options. While credit cards offer the convenience of easy access to cash, they come with high-interest rates and fees that can quickly add up. Instead, consider a personal loan as a better alternative.
Personal loans can provide you with the funds you need at a lower interest rate, with a fixed repayment schedule, and without the temptation of revolving credit that credit cards offer. Find out below a quick summary of the advantages of personal loans over credit cards and why personal loans might just be the better financial option for you.
Credit Card Cash Advance
Lower fixed rate
Higher variable rate
Fixed term, typically 1 to 7 years
No grace period, interest accrues immediately
Origination fee, late fee, prepayment fee
Cash advance fee, ATM fee, higher interest rate, late fee
Yes, credit check required
Yes, credit check required
Higher borrowing limits
Limited by credit card limit
Impact on Credit Score
Can help establish credit and improve credit score if paid on time
High utilization rate can negatively impact credit score
Fixed payments, easier to manage and pay off
Cycle of debt, high-interest rates can lead to long-term debt
Collateral may be required
Unsecured, relies on credit history and income
Where can I apply for a personal loan? Lendela can help!
Now that you know that credit card cash advances do more damage than benefit to your financial well-being, it's important to look up the best personal loans in Singapore.
Instead of reading the terms of 20 banks and comparing interest rates one by one, you can rely on Lendela, which automatically compares multiple financial institutions and recommends you the best personal loans based on your information and needs.
- Taking a cash advance on your credit card may seem like a quick and easy solution, but it comes with high-interest rates, fees, and no grace period, which can lead to a cycle of debt that is difficult to break.
- Personal loans can be a better alternative to credit card cash advances because they offer a lower fixed interest rate, a fixed repayment schedule, and higher borrowing limits.
- When considering a personal loan or credit card cash advance, it's important to compare the interest rates, fees, and repayment terms to determine which option is best for your financial situation.
- Regardless of which option you choose, it's important to manage your debt responsibly and make timely payments to avoid high-interest charges, negative impacts on your credit score, and long-term debt.