by Venus Zoleta, on category "Credit Card"
July 4, 2018
Wondering if you can get cash from your credit card? Yes, it’s possible through a credit card cash advance that allows you to withdraw money from an ATM or a bank branch. But just because you can doesn’t mean you should.
A cash advance is a convenient yet expensive way to borrow money. When you take out a credit card cash advance, you’re borrowing against your credit card limit. This is different from using a debit card at an ATM, which involves getting money from your bank account. You’ll have to pay the cash advance amount back with interest and other fees.
Consider and understand the risks of using a cash advance before you insert your credit card into an ATM.
Cash advances come with a lot of expenses that add up to your monthly bill, making it hard to keep up with your credit card payments.
For every cash advance transaction you make with your credit card, the bank will charge you either a fixed amount or a percentage of the withdrawn amount.
In the Philippines, credit card cash advance fees range from PHP 300 to PHP 600 or 3% to 5% of the amount owed, whichever is higher. There’s also an additional fee if you withdraw at an ATM of another bank.
In addition to the credit card cash advance fee, you’ll be paying more on your next billing cycle when you make an over-the-counter cash advance transaction at a bank branch. For example, when you withdraw money over-the-counter using a Metrobank or Security Bank credit card, the bank will charge you a PHP 500 service fee.
What makes a credit card cash advance really expensive is its interest rate, which is much higher than the rate charged on regular purchases.
Unlike finance charges on credit card purchases, there’s no grace period on most credit card cash advances. Your cash advance starts accumulating interest immediately—starting from the transaction date until you fully pay it off. Even if you’ve fully paid off your previous credit card bill, you can’t avoid a finance charge on a credit card cash advance.
When you use your card for a cash advance transaction, it’s easy to max out your credit card. To avoid that, pay your credit card bill as soon as possible—don’t wait until your next billing statement comes.
Banks in the Philippines set a credit card cash advance limit of 30% to 100% of a cardholder’s total credit limit. If you withdraw too much, you’ll quickly max out your credit card. When you exceed your credit card limit, the bank will charge you an over-the-limit fee of PHP 500 to PHP 1,500.
In the eyes of lenders, borrowers who use a credit card cash advance aren’t responsible with their money—therefore, they’re a credit risk. Cash advances contribute to credit card debt, which is included in a credit report. If your debt is higher than your total available credit, you’re most likely to get a low credit score.
Before you insert that card into the ATM, think about how it will affect your credit score. A bad credit score will hurt your chance of getting approved for a credit card or loan in the future. Or if you’re lucky to get an approval, you might be slapped with a high interest rate.
Knowing that you can withdraw cash anytime using your credit card makes it all too easy to spend beyond your means.
Let’s say you want to purchase something, but the seller accepts only cash payments. You have only a credit card and no cash in your wallet. Because you want the item so badly, you rush to the nearest ATM to withdraw money.
A cash advance may trigger such a poor spending habit, so avoid this credit card feature as much as you can.
Given its high cost, a credit card cash advance should be used sparingly. It’s a sensible choice only during an extreme emergency and when getting a payday loan will cost you more than getting cash through your credit card.
Consider also cheaper options for borrowing money. Ideally, having an emergency fund can save you when there’s an unforeseen expense. You may also look into applying for a personal loan. Its interest rate is much lower than the rate charged on a credit card cash advance.
(Photos from Freepik.com)