Credit cards are a modern marvel. Aside from providing us with a convenient tool to buy and purchase both online and offline, credit cards also allow its users a chance to make a cash advance.
Here, credit card owners can borrow cash from their card. For some, a cash advance can be a savior in emergency financial situations. This does not mean though that taking a cash advance from a credit card is the best possible decision. In fact, money experts warn that making a cash advance is financial suicide.
Credit Card Cash isn’t a Good Idea
In essence, the cash advance option of our credit cards sounds like a sweet deal. If you are in need of cash immediately, you can visit your bank or an ATM nearby to withdraw money. You need your PIN, and voila! You can make a cash advance from your card. But, you have to consider what this option does to your credit record and your entire financial record.
Here are the top reasons why you should not even consider using your credit card to make a cash advance.
1. High interest rates
Let’s face it, credit cards have a bad name when it comes to interest rates. In Singapore, an average annual interest rate of a credit card is around 25% which is extremely high compared to 5% in banks. But, if you are planning to take a cash advance, note that the interest rate for what you owe is even bigger at around 28% per year or even higher.
Note that your credit card cash advance has a so-called compound interest. In simple terms, this means that your interest earns interest as well. For every day that you fail to repay your cash advance, you are being charged with additional interest. You have to pay interest on a daily basis.
2. High charges and fees
Note that aside from paying high interest rates, your credit cash advance will also charge you a cash advance fee. In Singapore, most banks would charge 6% of the cash advance amount or 15% whichever is higher. This means that if you get a cash advance of $500, you will be charged a cash advance fee of $30.
Also, other credit card companies have other charges and fees on top of the interest and cash advance charge. It is best to research the policies of your own bank to make sure that you don’t get surprised if you have to pay additional fees. Also, make sure that you understand all the cash advance terms before doing any transaction.
3. Low loanable amount
You also have to remember that the loanable amount you can take from a credit card cash advance is limited. Various banks have several cash advance limits ranging from $200 to $6,000 per day. While for some banks, they only allow you to take around 50% to 75% of your credit limit.
The low loanable amount means that if you are thinking of a big purchase, a cash advance might not be the choice for you. For a bigger loan, you might want to consider a personal loan from a bank or a licensed moneylender instead.
Average Cost of Cash Advance
While each credit card company has its cash advance terms and regulations, we can also look at the average cost of these financial institutions to get an idea how much you have to pay in case you decide to get one. The credit card cash advance fee, also known as processing fee ranges from 5% to 6% of the principal amount. For example, if you decide to borrow $1,000, you will have to pay around $50 to $60.
Aside from this cost, credit card cash advance is also expensive because of its annual percentage rate or annual percentage rate (APR). In Singapore, most credit card companies charge an APR of around 25%. In contrast, credit card advance APR charges as high as 29% to 30%. All in all, taking a credit card cash advance will cost you big time – both in terms of the fees and charges you have to pay and your credit rating.
Although credit cards offer an easy, fast, and convenient way of borrowing money, its cash advance feature is not a wise choice for users. It is best to use a credit card to purchase online. But, if you need to get cash immediately, there are far better options you might want to consider. You must look for options or alternatives which can offer you lower interest rates, more flexible payment terms, and higher loanable amount.
1. A loan from friends and family
One alternative is to seek help from friends and family, You know and trust each other, so there is no need to present collateral. Also, in some cases, you can even ask your close friends and relatives to waive any interest rate. One reminder here is to ensure that you pay what you owe them. Verbal contracts are deemed legal in the country.
2. Personal Loans
Another good alternative is to take personal loans from banks or licensed moneylenders. A personal loan is a type of unsecured loan which means that you do not have to present collateral for your loan. If you are in need of a lot of money, this option is right for you as you can borrow as much as $100,000.
3. Peer-to-peer loan
Also known as P2P lending, here you get to be connected with individuals or businesses willing to lend money. To avail of this, look for a website that matches lenders and borrowers. You have to read more information about this option to make sure that you are choosing the best businesses or individuals to deal with. Ask other people who have experienced this type of loan before so you have information on what to expect during transactions.
4. Salary advance cash
You can also get a salary advance from your employer. Many employers in Singapore offer low-cost payroll advances. Note that you have to ask your company if you are eligible to take such an option because not all employers are given this option.
5. Collateral loan
Meanwhile, if you need a big purchase, a collateral loan might be your best choice. You need to pledge some asset like a house, car, stocks, or bonds. This collateral serves as a promise to the creditor that you will pay back what you owe them. One risk you have to face here is that possibility that you can lose your properties if you fail to pay back your loans.
Surely, taking a cash advance from credit cards is a bad choice. While advancing cash from a credit card is good short term, it will ruin you in the long run. It is only for those who are badly in need of money who do not have any other choice.
As mentioned above, a cash advance from credit cards is much more expensive and can only give you a small amount of money. There are far better options to consider is you want to take a loan or borrow money. If you are in need of money and do not want to take risks and burden of a credit card cash advance, you might want to check out Fortune Credit Pte Ltd. We are a licensed moneylender who offers various types of loans. We cater even to those who do not have a lot of records when it comes to loans and borrowing. Also, check out our blogs to know more about your loan options.