Not All Cash Advances Are Alike
by
Rebecca A. Smith
When looking to borrow money in hurry, many questions should be considered: Is a credit card better than a loan? Will a payday loan or cash advance cover my expense needs? What type of advance should I seek? However, due to the abundance of lending options, it can be overwhelming for a potential borrower to decide which loan or credit option is best. Not all cash advance loans are created equal; in order to ensure the best deal, a potential borrower needs to research lending options, interest rates, and business reputability. To help such people get started, a breakdown of the differences between types of credit card advances follows.
Whenever you pull money out of an ATM on a credit card (not a debit card), transfer funds from a credit card for overdraft protection, or purchase money orders on your credit card, you are using a bank cash advance. These types of advances are more restrictive than direct deposit/ check advances because only a limited portion of one\’s total credit limit can be accessed via this service; this is called a Cash Credit Line.
In contrast, direct deposit/check cash advance are utilized when writing access checks, the paper checks that often come along with your credit card statement, or when contacting your bank to transfer money directly from your credit card to a bank account. These types of transactions allow the borrower to access their total limit; unlike bank advances, these transactions do not have a cash credit line or limit.
Thus, the type of advance a borrower uses depends largely on his/her financial needs. When larger expenses pop-up, direct deposit or check advances might be more useful than the more limited bank advance option. A cash advance loan from a payday lendermay help as well.
However, before using any of the aforementioned advance services, a borrower is wise to consider the following factors: interest rates, transaction fees, and grace periods. The convenience of the advance option comes with a price; generally, the interest rates on these transactions are far higher than the average credit card APR. For example, a credit card with an APR of 9% for regular card purchases may charge upwards of 30% for cash advance options. Similarly, credit cards often charge transaction fees; these fees can be based on a percentage of the amount being withdrawn or a flat per-transaction rate.
If a creditor offers a flat rate, it is wise to borrow the total amount needed in one fell swoop rather than making multiple small purchases. If the creditor\’s fee is a percentage of the transaction, then a borrower can borrow on an as needed basis. Lastly, many cards offer grace periods for regular purchases wherein no or minimal interest is charged; advances are far less likely to offer such interest-free periods. Rather, interest begins to accrue at the time of withdraw, meaning that it is incredibly important to pay off these advances quickly to avoid unnecessary costs.
In order to avoid paying more than one intends to, it is imperative that the borrower knows how much the cash advance will cost prior to borrowing. While not all credit card advances are the same, and each account will have different rules and regulations, by and large they all have one thing in common: high interest, high fees, and no grace period. As such, they should be used only in emergencies and with care.
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Article Source:
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