using credit card

Reasons Taking Out a Cash Advance on Your Credit Card Is Seldom a Good Idea

Your handy credit card comes with a boatload of features, which include the very convenient cash advance feature that enables you to withdraw, in actual cash, as much as 90% of your credit limit.

But while this is undoubtedly tempting and useful when you’re really in a financial pinch, it also comes with various caveats and conditions. That being said, here’s why you need to think twice (or more) before using your card’s cash advance feature.

You’ll get a high interest rate.

Basically, you’ll increase your card’s overall interest rate if you take out a cash advance unless you can repay everything prior to the next billing. The reason for this is that the interest rate is about 29% yearly for cash advances, as opposed to 26%, which is the average interest rate on credit cards. Additionally, you’ll also be slapped with a steep cash advance fee.

You’ll need to pay a costly fee on top of interest.

In general, the cash advance fee on most credit cards is either 6% or the amount or $15, whichever’s higher. So, if you take out a $100 cash advance, your fee would be $15, but if you take out a higher cash advance, say $2,000, your fee would be $120, which is 6% of $2,000.

It’s also crucial to note that you’ll be charged with this fee on every advance you take out, so if you take out plenty of cash advances on your card, you can expect your EIR or effective interest rate to skyrocket.

You have other options with lower fees and interest.

man using credit card

Keep in mind that if you have a credit card, the chances are that you can also get a personal line of credit or personal loan in Singapore. While both these options also come with processing fees, you will find that the fees for both are much lower than fees for sizeable cash advances.

In addition, the interest rate on personal loans and credit lines are typically between 6% and 9% per year, as opposed to the 26% to 29% interest rate on cash advances.

Depending on your case, you can also avail of balance transfers that will provide an interest-free period of six up to 12 months. As you can plainly see, you can save more with either option.

The bottom line? Only take out a cash advance when you don’t have any other options. For instance, say you’re on holiday abroad and you have to withdraw cash so you can pay a merchant that does not take credit cards.

But even in this situation, it might be better to get someone to send you money instead to avoid international fees on top of the cash advance fee and interest rate.

The main thing to remember is that if you really have to borrow a significant amount of cash that you know you can’t repay in a lump sum, refrain from using your card’s cash advance feature, as there are other more affordable options available to you.

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