2 Times a Credit Card Cash Advance Makes Sense

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A credit card cash advance is expensive. If you use your credit card to withdraw money from an ATM, you can generally expect to pay:

  • A one-time cash advance fee, typically 3% of the amount withdrawn
  • ATM fees (often charged if your card is issued by a different bank than the ATM)
  • An interest rate well above the APR of your purchase. Worse still, most cash advance transactions don’t have a grace period, which means interest starts accumulating immediately.

For example, the BankAmericard Cash Rewards credit card charges cash advance fee from eis $10 or 3% the amount of each transaction, whichever is greater. It then charges an interest rate of 25.24% on cash advances, compared to a range of 13.24% to 23.24% on purchases.

If you borrow $300 for 15 days, you could end up paying around:

  • $10 cash advance fee
  • ATM fee of $4.50 (depending on the medium)
  • $3 interest for 15 days
  • $17.50 total borrow $300 for 15 days.

Although $17.50 seems expensive, it’s actually a better deal than these two alternatives.

1. Use a bank overdraft

Overdraft fees at banks are even more expensive. Average overdraft fees are $34, and it is usually billed per incident. To

Bank of America
, you would pay $35 per transaction (up to four per day). After five days, you will be charged an additional $35 overdraft fee.

If you borrow $300 for 15 days using a standard overdraft at Bank of America, you will end up paying $70 total. In this example, using the cash advance feature of your credit card would be cheaper than using the overdraft feature of a typical checking account.

2. Visit a payday lender

Payday lenders can be even more expensive. According to the CFPB, typical payday lender fees between $10 and $30 for every $100 borrowed. The typical duration of a payday loan is 15 days. If you borrow $300 for 15 days from a payday lender, you will pay between $30 and $90 in total.

Ironically, payday lenders can be cheaper than overdrafts in some cases. But using a cash advance on a credit card is still the cheapest option.

How to Find the Cheapest Cash Advance Credit Card

If you think you might need a short-term loan in the future, it’s best to shop around and find the cheapest credit card before an emergency hits. Some credit unions actually offer credit cards that do not charge cash advance fees. ExpandMoney (where I work) recently did some market research and found 20 credit union credit cards that don’t charge cash advance fees.

The best credit union on the list is PenFed. Not only will you not have to pay cash advance fees, but the interest rates on cash advances are much lower than those offered by traditional banks. For example, the PenFed

Promise
credit card has a cash advance APR range of 10.24% to 17.99%. To borrow $300 for 15 days from PenFed, the highest fee would be ATM fees.

If a short-term loan becomes a long-term loan

The problem with payday loans is that people tend to renew the loan often. If you decide to renew the $300 loan in this example for another 15 days, you will end up paying $30-90 in additional fees. The other benefit of a cash advance is that you won’t be charged any additional fees in the future, as long as you make your payments on time each month. Interest would continue to accrue at the cash advance APR, but no additional fees would be charged.

An emergency fund is always better

Whenever you need to borrow money for a short period, it will cost you dearly. A credit card cash advance, especially from a credit union, can be a much better deal than payday lenders and short-term and long-term overdraft fees. However, the best deal is to have the discipline to build up an emergency fund for at least six months.

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