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When the car suddenly breaks down, the family pet has to go to the vet, or the plumbing in the kitchen needs fixing, life is full of unexpected events and sometimes you need cash urgently to deal with these big fat expenses.

Credit card cash advances can be very tempting as a quick solution to your emergency. You can ideally walk into the bank, hand over your credit card and request a cash advance – simple as that. But, there are things you should look out for when it comes to requesting a cash advance. Let us explain the key details and costs involved.

 

 1. What are cash advances?

In addition to making purchases, most credit cards also allow you to withdraw money, in the form of cash from your credit card account. A cash advance is essentially a short-term loan that you charge against your credit card.

 

2. What transactions are considered cash advances?

Depending on the terms and conditions of your credit card, there are many transaction types that are considered cash advances which you might not be aware of:

Cash withdrawal: Using your credit card to withdraw cash from either an ATM, in a branch, or at the checkout of the supermarket.

Balance transfers: Transferring a debt to your existing credit card, can attract the corresponding high interest rate, as well as a fee.

Gambling transactions: Using your credit card online or at the casino, to buy credit, chips, lottery tickets, or placing bets at sporting events and through betting agencies.

Foreign currency & traveller cheques: Using your credit card to purchase travellers’ cheques as well as foreign notes or coins.

Gift cards or prepaid cards: Buying or reloading your gift cards, store cards or prepaid cards using your credit card.

Online transfers: Transferring money from your credit card account to your transaction account.

BPAY transactions: When the biller does not accept regular payments from a credit card (your card issuer will warn you if this type of transaction will occur).

 

3. What rate would I be charged on cash advances?

Interest is charged on cash advances from the date you make the withdrawal until it’s paid back in full. The interest rate applying to cash advances (called the cash advance rate) can vary but is usually much higher than the interest rate for making purchases. Additionally, you may be charged a cash advance fee by your credit card provider, which may be a flat fee or a percentage fee based on the amount of cash you withdraw.

 

4. Can a cash advance hurt my credit score?

Credit reports do not indicate when a cash advance is taken against your credit card account, therefore, cash advances do not affect your credit score directly.

However, as cash advances typically come with high interest rates and additional fees, it can cause the balance on your account to grow quickly. If you fail to make your repayments on time, resulting in a series of late payments or a default, it can affect your credit score and your ability to obtain further credit.

 

There are many reasons why you could need cash urgently and a cash advance is not your only option. You could consider using your savings, increase your income by getting a side job or compare different personal loans that might be better suited for your financial circumstances.

If you do need to take out a cash advance, be sure you understand the terms, conditions, and fees and make every effort to pay back the balance in full as soon as you can.