You may be one of the 14 million Australians with a credit card out there. You may use it here and there for something indulgent or when you’re a bit short on cash and need to buy groceries or supplies. Many people don’t know it, but credit cards can be used to take out small cash amounts.
There may come a time in your life when hitting the “cash advance” button on your credit card seems tempting. An unexpected bill comes in and upsets your financial world. You feel desperate. It literally is that easy – you pop your credit card into the ATM, punch up the dollar amount and cash comes out. Then you’re free to spend it however you like.
With most things in life, nothing really comes easy. If you are in dire financial straits, a credit card cash advance may leave you worse off than taking out a small cash loan from a reputable small cash loan lender.
You’re slugged with fees without being told
Unless you’ve the many, many pages in your credit card product disclosure statement, you’ll most likely be hit with a whole raft of fees as soon as you press “enter.” First off, if you take out a cash advance from an ATM, you may be charged a transaction fee by your bank or credit union. This is almost certain you’re using a non-bank credit card such as American Express or Diners’ Club.
The fees don’t stop there. Your credit card company may charge you a cash advance fee. If you take out a small amount such as $50, the fee you’ll have to pay back later could almost be up to half of what you’ve withdrawn. It might even go over the half way mark when factoring in the ATM fee.
High interest rates
On average, a cash advance interest rate could be up to 7% higher than your annual percentage rate on purchases. Considering credit card interest rates are pretty high to begin with. The average Australian credit card interest rate is 17.16% per annum. According to Choice, almost half of Australians do not even know their interest rate. Even less about what a cash advance could end up costing them. If you do not pay off your credit card debt quickly or opt to pay off the monthly minimum, you could end up paying hundreds or even thousands in interest over months or years.
Negative after effects
Once you take out a cash advance, it sends a negative signal to your bank or Credit Card Company. Just by taking a cash advance out, you are seen as a higher risk. You could elect to pay off the advance quickly, but you are still saddled with fees and the high finance charges. This may pose a problem if you want to increase your credit limit in the future.
Why small cash loans are different
Small cash loans are provided on a case by case basis by lenders who strictly follow responsible lending practices and are licenced by a regulator to provide consumer credit. An ATM cannot ask you if you are capable of paying back a credit card cash advance, nor can it do all the checks that are involved with in taking out a small cash loan. Small cash loan providers such as Smallloans.com.au provide you with all the information you need up front so you know exactly how much a cash loan will cost you. It’s another way how small cash loans can help, where credit card cash advances can harm.