7 things you should know about cash advances

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Small business credit cards are primarily used for making purchases, but most will also allow you to make a cash advance (not to be confused with a merchant cash advance). And while some may think that a credit card cash advance is similar to withdrawing money with an ATM card, there are many important and potentially costly differences.

Here are eight things you really need to know about credit card cash advances before you consider making one:

1. Credit card cash advances generally have higher interest rates.

Most small business credit cards will have a higher interest rate for cash advances than for purchases or balance transfers. This higher interest rate represents the increased risk of default associated with clients who are in desperate need of money.

2. Most credit cards charge expensive cash advance fees.

In addition to paying a higher interest rate on your credit card cash advances, your card issuer will likely charge a significant fee for the transaction. It’s not uncommon for a small business credit card to charge a 5% or $ 15 cash advance fee, whichever is greater.

3. There is no grace period on cash advances.

The most affordable way to use your credit cards is to avoid interest charges by paying off your monthly statement balances in full. But when it comes to cash advances on your credit card, there is no grace period. Whenever you make a cash advance, you will have to pay interest on that amount from the day of the transaction until you pay it back.

4. You may also incur foreign transaction costs.

Presumably, many credit card users make cash advances not because they are strapped for cash, but because they are in a foreign country and have no other way to go. access local currency. But just like purchases made outside of the United States, your overseas cash advances may still be subject to an overseas transaction fee, typically 3%.

5. Don’t forget the ATM fees.

In addition to high interest rates, cash advance fees, overseas transaction fees, and no grace period, your credit card cash advances can still incur over the counter fees. automatic billed by the machine owner. If you count, that makes a total of three different fees that you could potentially be charged per one transaction, and that’s before you calculate the cost of interest charges.

6. You must first set a PIN code.

Most credit card cash advances take place at ATMs and you must enter a PIN code before the transaction is approved. But unlike an ATM card, you won’t receive a PIN in the mail by default after receiving a new credit card. To set your PIN code, you will need to contact your card issuer. Not creating a PIN code is a great way to avoid accidentally withdrawing money.

7. You can set the cash advance limit for your account.

Another way to limit the costs of a credit card cash advance is to set limits on the account. To do this, contact your card issuer and specify a maximum dollar amount that can be authorized. In fact, you can set your card’s cash advance limit at $ 0, in order to prevent cash advances from being authorized.

8. There are many alternatives to credit card cash advances.

The easiest alternative to using your credit card to access cash is to use a debit or prepaid card with ATM access. If you need to make a payment to a person or business that doesn’t accept credit cards, you may want to consider one of the many electronic payment systems that accept credit cards. Often times, these systems charge a fee of up to 3% to the payer or payee, but this is much less than any interest charges and fees that can be part of a credit card cash advance. And if a merchant accepts debit cards but not credit cards, you can use your credit card to purchase prepaid debit cards from many retailers.

This article was originally written on January 29, 2018 and updated on January 27, 2021.

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