How much do you get charged for withdrawing cash from a credit card?

The Hidden Costs of Credit Card Cash: Why It’s Often a Bad Idea

In a pinch, the thought of using your credit card to withdraw cash might seem like a convenient solution. However, before you head to the ATM, it’s crucial to understand the potentially crippling costs associated with credit card cash advances. Unlike using your credit card for everyday purchases, pulling out cash from your credit line is a very different ballgame, with far less consumer-friendly terms.

The primary difference lies in the interest charges. With standard credit card purchases, you generally have a grace period, meaning you won’t accrue interest if you pay off your balance in full by the due date. This is not the case with cash advances. Interest begins accruing immediately upon withdrawal, regardless of whether you intend to pay the balance off quickly. So, even if you settle the full amount within a few days, you’ll still be charged interest for those days.

But the bad news doesn’t stop there. Often, credit card companies charge a significantly higher interest rate on cash advances compared to purchases. This Annual Percentage Rate (APR) can be substantially inflated, making the cost of borrowing that cash even steeper. Imagine a scenario where your purchase APR is 18%, but your cash advance APR is a whopping 25% or higher. The difference adds up quickly, especially on larger withdrawals.

Beyond the higher interest rates, you’ll likely encounter a cash advance fee. This is a direct charge for processing the withdrawal. Typically, this fee is a percentage of the withdrawn amount, often hovering around 2% or even higher. So, if you withdraw $500, expect to pay an additional $10 (at a 2% fee) upfront, just for the privilege of accessing your credit line as cash.

Let’s illustrate the potential impact. Imagine you withdraw $500 as a cash advance with a 2% fee and a 25% APR. Instantly, you owe $510. Then, interest starts accumulating daily at the higher cash advance rate. Even if you repay the $500 within a week, you’ll still have to pay the fee and the accrued interest, potentially adding several dollars to the cost.

Why is this so expensive? Credit card companies view cash advances as riskier than purchases. They lack the security of a tangible item being bought and sold, making them more vulnerable to default. The higher fees and interest rates are essentially a way for the credit card company to compensate for this increased risk.

Alternatives to Consider:

Before resorting to a credit card cash advance, explore other options:

• Emergency Fund: If you have an emergency fund, now is the time to use it.
• Personal Loan: A personal loan often comes with lower interest rates and more favorable repayment terms than a cash advance.
• Borrow from Friends or Family: If possible, borrowing from a trusted source might be a less expensive option.
• Check Cashing at a Bank: If you have a check, explore cashing it at a bank or credit union, even if you don’t have an account (fees may apply).
• Payday Loans (Use With Extreme Caution): Payday loans are incredibly expensive and should only be considered as a last resort due to their exorbitant interest rates and fees.

In conclusion, while a credit card cash advance might seem tempting in an emergency, the hefty fees and high interest rates can quickly lead to a debt spiral. Carefully consider all alternatives before resorting to this expensive form of borrowing. Understand the terms and conditions of your credit card agreement regarding cash advances, and explore other financial options whenever possible to save yourself money and avoid unnecessary debt.