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Cash Advance: Should I Use One?

If you need cash right away, you have the option of getting a cash advance from one of your credit cards. All you have to do is present your credit card at a bank to receive the cash. You can also try to get your cash out of an ATM. Getting a cash advance can be great when you have an emergency, but it should only be used as a last resort. Here are some of the negatives of cash advances that you should be aware of.

High Interest Rate

One of the main negatives of taking out a cash advance is the high interest rate you will endure. The interest rate on a credit card will be considerably higher than the credit cardís regular APR. Lenders charge higher interest rates for cash advances because they think the consumers are much bigger risks. They also know that these consumers are desperate for money and will do anything for cash.

Fee

When you get a cash advance from your credit card, you will have to pay a fee that is three to five percent of the amount of the advance. For example, if you get a cash advance of $500, you may have to pay a $25 fee. This fee may be taken directly out of the cash advance or it may be added to your credit card bill at the end of the month.

No Grace Period

When you use your credit card to make a purchase, you will have a few weeks to pay the balance in full. However, when you take out a cash advance, interest charges begin piling up right away. Even if you pay back the cash advance in a week, you will still have high interest rates to pay.

As you can see, there are a few downsides to cash advances. If you can get cash another way, you should definitely avoid getting a cash advance. If you are unable to pay the high interest rates in a reasonable amount of time, you might get into a lot of debt. Also, you should understand that you might have a different credit limit for cash advances. For example, if you normally have a $4,000 credit limit, you may only be able to get $1,000 in cash. The more money you borrow, the harder it will be to get your finances back in order.