Most credit card owners know that if they take a cash advance loan on their credit card, the credit card company will charge a “cash advance fee”. There are other fees attached to this type of cash advance that are not so commonly known. For instance, credit card companies typically charge a higher than normal interest rate for a cash advance. “…the interest charged on these loans is a fixed number of percentage points above the prime rate,” say the financial experts at Investopedia. In addition, credit card companies do not usually extend a grace period as they do with regular monthly purchases. So, even consumers that pay their balance off on a monthly basis will pay interest on a cash advance loan.

Just a Few Examples

The purchase annual percentage rate (APR) on a Capital One Platinum MasterCard is 7.16%. The cash advance APR on the same card is 20.06% and the cash advance fee is 3% or a minimum of five dollars. What this means to the card holder in dollars and cents, on a cash advance of $500, is a $15 cash advance fee and a total cost of $55.98 in interest if he or she takes one year to pay off the balance. On a $500 purchase, card holders will only pay $19.60 if they take a year to pay off the balance and of course less than that if the balance is paid off sooner. Of course the higher the APR, the more the cash advance costs the consumer. A Compass Bank Platinum Visa charges a cash advance fee of 4% or a minimum of $10. The APR on this card for a cash advance is 26.74% which means that the same $500 would cost this cardholder $73.34 in interest plus a $20 cash advance fee. And in order to pay this $500 back in one year, the card holder would have to pay $47.95 per month. This is in addition to whatever they would normally pay on that card per month. Anyone considering a cash advance from a credit card may want to consider, if they can afford an extra $50 per month, because the average consumer will not be able to pay off a $500 balance at the end of the month.

Other Options

Other less costly options exist. It may be a little less convenient to visit the Credit Union or bank and apply for a short term personal loan, but it will be less expensive in the long run. Some people would rather take a cash advance on a credit card than borrow from their savings, but once again, it costs less in the long run. The amount of interest paid on that $500 for that year will be much less than the interest charged by the credit card company.