• Tweet

• Tweet

Anyone who has a credit card may have fast access to cash. Many of these cards are not just lines of credit for making purchases. They can also be used to get cash, up to certain limits. Cardholders can present these at certain banks or ATMs and in return, be provided with money to use for any purpose.

Sounds like a debit card that does not require funds in the account, right? Well, there is a lot more to it than that.

To use cash advance features on some cards like American Express, cardholders must obtain separate approval. With a corporate card account, this means the program administrator must first establish the feature with the credit card company.

Cardholders then contact the card issuer to obtain a personal identification number to use at the ATM or bank. Each cardholder may be subject to a different cash advance limit based on his or her credit rating.

When taking a cash advance, multiple charges are incurred. First, there is the cash advance fee, which is usually the greater of a flat dollar amount or percentage of the amount advanced. Common fees are $5 or $10 or three or five percent of the cash advance amount, whichever is greater between the flat fee and percentage.

A cardholder pays this fee each time a cash advance is taken. It becomes clear that this charge can really add up, especially when a cardholder requests a substantial amount of money.

Interest is also applied to cash advances and the rate is usually much higher than the rate for a purchase. For example, a card may have a 20 percent APR for all purchases and an APR of 25 percent for cash advances. This rate is usually variable based on the market and depending on the Prime Rate.

With a purchase, cardholders usually have a grace period of 25 days or more. If they pay the balance due for purchases within this period, they are not subject to interest on the charges.

The same does not hold true for a cash advance, which begins accruing interest from the moment it is taken. A cardholder who takes an advance and repays it within one week will still incur a week’s worth of interest at the high rate mentioned above.

This makes even a short-term loan rather expensive using this method.

It is usually cheaper to place a charge on the card for the purchase rather than using a cash advance to pay for it. Even providers like cable and telephone companies are now accepting credit card payments for services. As long as the cardholder can pay the card balance within the month, there should be no charge to use this method of payment.

Consumers should be very cautious when taking cash advances through their credit cards. Purchasing the needed item with the card is often a better approach. For large-ticket items, a credit card with a zero percent interest promotional period provides a limited time of no-charge financing, allowing the cardholder to repay the money due in installments.