In the real world, cash advances made from your credit cards can also be considered a cash loan, where costs are really expensive.
In fact, a lot of people who have opted to access cash through their credit cards have ended up in huge credit card debts. Many experts would suggest that you should avoid transacting on cash advances from your credit card unless the emergency is so extreme and that you are privileged enough to pay for the borrowed money at the soonest possible time.
To know whether credit card advances are a good idea, let’s get into a deeper look at how these things work.
What Is a Credit Card Cash Advance?
In a nutshell, a cash advance from a credit card are more short-term loans that you can access directly from your credit card.
This means, you can access physical cash on hand so you can make your purchases without using your credit card as a payment–especially on establishments that don’t accept cards.
Credit card cash advances can be a viable option for those who need to have a certain amount of cash immediately. This works great on emergencies, and for purchases that could not be paid for using your savings account or your checking account.
While there are certain advantages for a credit card cash advance, know that there are some cons that you should know about as well. Let’s read those into detail:
Pros
- There is no approval process necessary when accessing cash. As long as you own a credit card, you can get cash very much as quickly as you can imagine.
- Another pro when getting your cash advances from your credit card is that you can pay this back as soon as possible.
Cons
- Because of convenience and relatively high risks, cash advances from credit card companies are highly expensive.
- A cash advance transaction made from credit cards have a maximum cash advance amount, and is only up to a couple thousand dollars.
It is important to note that a cash advance made through a credit card is different from using your ATM debit card. With a debit ATM card, you can withdraw cash from your account and is usually free of charge.
If there is not enough money in the account, however, your payment transaction will get declined. In contrast, a credit card can give you cash advances as long as you have not gone over your available credit limit.
Cost of Cash Advance
It is important to reiterate that while credit card cash advances are one of the so-called “easy” ways to loan some cash, you should remember that this method is also the most costly.
Credit card companies have their own cash advance fees that come along with high interest rates that aren’t usually present in personal loaning companies, or even your ATM cards.
For a more detailed reference, check on the table below:
|
Bank |
Cash Advance Fee |
Interest Rates |
| American Express
|
5% | 24% per annum, charged on a daily basis |
| ANZ
|
5% or S$15 whichever is higher | 28% per annum, charged on a daily basis |
| CIMB
|
6% or S$15 whichever is higher | 28% per annum, charged on a daily basis |
| Citibank
|
6% or S$15 whichever is higher | 29.9% per annum, charged on a daily basis |
| DBS
|
6% or S$15 whichever is higher | 28% per annum, charged on a daily basis |
| Maybank
|
5% or S$15 whichever is higher | 24% per annum, charged on a daily basis |
| HSBC
|
5% or S$15 whichever is higher | 24% per annum, charged on a daily basis |
| Standard Chartered
|
6% or S$15 whichever is higher | 24% per annum, charged on a daily basis |
| OCBC
|
6% or S$15 whichever is higher | 28.92% per annum, charged on a daily basis |
| UOB
|
6% or S$15 whichever is higher | 28% per annum, charged on a daily basis |
Sample Computation: How Much Would a Cash Advance Cost?
To better understand the perspective being made when getting a cash advance from your card, let’s picture out a sample computation.
Let’s say you would want to make a purchase using cash, and have taken out money from your credit card. The following fees and charges would automatically apply:
- Cash advance annual percentage rate (also called as APR): 29% per annum
- Cash advance fee: 6% of the total transaction cost, or S$15–whichever is higher
Now let’s assume that you withdrew S$1,500 cash on the first day of your billing cycle, your initial added costs would be the following:
- Cash advance rate: S$90 on top of your borrowed money
- TOTAL cost: S$1,590
Remember that those are just your initial costs. This cash advance transaction will accrue an interest rate of 29% per annum and starts from the date where you made the cash advance.
Now if within 30 calendar days you have failed to make the payment, your interest charge on top of the fees stated above would be S$36.
At this time, you should be able to imagine the high costs you have made in your first month just to get your cash advance amount. At this point, you would have already paid S$126.
If you have failed to pay for your borrowed cash in 6 months, this would mean you’d pay 17% worth of interest, making you pay S$1500 plus S$320. That is more than 1/4 of your borrowed money.
Key Considerations Before Using Your Credit Card to Make a Cash Advance
Given the extremely high interest rates and the high cash advance fee, it can be easily noted that cash advances from credit cards is an expensive option.
To better understand the costs, below are key considerations that you must keep in mind before using your credit card to help you when you need some extra cash.
1) High Interest Rates
Getting advance cash from your credit card usually has a higher interest rate as compared for your purchases as well as your balance transfers. The longer you pay off your cash advance amortizations will mean more (and higher) interest rates that will be accrued as time goes by.
These rates will always be more expensive than purchase interest rates as well. Remember, that credit cards don’t give out grace periods on cash advances. Interest rate calculations start accumulating from the date you have made the transaction, and not solely because of your billing cycle.
2) Additional Fees
Because of the cash advances, additional fees like the cash advance fee is either S$15 or 6% of the total borrowed amount withdrawn–whichever is higher. Most credit card providers would usually charge on the higher end, so it is important to be aware about this.
3) No points
We all know that there are a lot of perks that come with the use of your credit card. Some card companies give out flying points or travel miles. Some would even offer rebates! However, cash advance transactions would disqualify you from getting any free points or perks on the transaction.
4) Credit card payment allocation
In essence, whenever credit card repayments are made, they are being allocated to the debt that initially attracts the highest rate of interest. Consequently, the cash advance transactions will be paid back first over a balance transfer or other purchases. These happen whenever credit card cash advance repayments are being made.
5) No interest-free days
Your interest fee accrual will start from the day you have made the transaction, which results in interest-free days. Until the full cash advance payment has been made, you will eventually accrue interest.
One professional tip that you can really take note of is that of minimizing the very high interest by repaying for your amortizations as quickly as possible.
Because you are being charged with interest each day, you don’t have to wait for your bill to arrive in the mail to pay for your dues! Therefore, the soonest that you get to have money to help you repay your borrowed money from your credit card, the better! Do not wait for your repayment due date; instead, pay for your loan immediately!
Given this very expensive dilemma, you would ask, “Are there alternatives?” Well, the easy answer is — yes!
Alternatives to a Credit Card Cash Advance
Because of the financial inefficiency to opt for cash advances from credit cards, so many alternative options have emerged in the financial and lending industry. Let’s explore these alternatives below:
1) Personal Loan
When it comes to immediate cash advance needs or access to money because of a medical or other financial emergencies, or if you simply would want to have a project to improve your home, or travel to places outside your town– and would need money for it, then subscribing to a personal loan would be a viable option for you.
While there are a lot of loan providers for cash advance Singapore, it is important to transact only with those that are not just licensed moneylenders authorized by the Ministry of Singapore, but also those that provide the best loan products with exemplary service.
A1 Credit is one of the most renowned in providing such personal loan products given their very fast approval and guaranteed disbursement. You can even have your personal loan approved and disbursed very quickly and within the hour!
The basic eligibility requirements to have access to a personal loan are (but not limited to):
- Being 21 years of age or above
- Having a minimum monthly income of $2,000 for Singaporeans and residents
- Having a minimum monthly income of S$3,000 for foreigners working in Singapore; and
- other identification documents.
2) Payday Loan
A1 Credit also offers payday loans to anyone who get worried that they wouldn’t have the enough financial resources to help them get through their next payday.
A1 Credit is more than capable in giving people the funds they need to help them last till payday–and they are known to be one of the moneylenders that provide the lowest interest in the country.
You would not need to go through any background and credit history checks when applying for a payday loan. In fact, the application process is so easy, you can have the loan approved in a matter of 30 minutes!
3) Debit Card
If you are in need of some money from the ATM, it can be understood that this option can be considered as one of the most affordable methods. Many ATM Debit cards offer free money withdrawals from the ATM as long as you withdraw from your bank’s associated business networks and withdrawal machines.
Bottom Line
Transacting on credit card cash advances is a good idea for extremely difficult scenarios where the very high borrowing costs would definitely outweigh the emergency situation. In this article we have learned how much money is wasted because of credit transaction fees, interest rates, and added annual computations. All these costs just outweigh the benefits!
However, if you need to access money on the spot, and become financially efficient about it, then you might want to veer away from traditional financial institutions and consider licensed money lenders in Singapore.
