If you own a credit card, you must be aware of the feature called ‘cash advance.’ The credit card issuer will inform you about cash advances when you apply for the card. A cash advance is an amount of cash that you can borrow against your credit. All credit cards come with a credit limit, and a cash advance will allow you to borrow cash against this limit. You have to pay back the advance with interest. This amount is tied to your credit card and you have to repay it over a period of time. You can also make minimum payments in installments.
Features of cash advance
Your limit of cash withdrawal depends on the limit of your credit. You need to refer to your account to determine the amount of cash advance you are eligible for. This limit could also be lower than the total limit in case there is a balance on your card. You need to understand that this cash advance feature is not available to customers free of cost. Customers need to pay a fee and this fee includes an interest rate that is higher than the interest rate applicable to all the purchases made by the credit card. This fee depends on the amount withdrawn; it is a percentage of the total amount withdrawn. When you apply for a credit card, you need to go through the credit card terms and conditions to know more about the cash advances.
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Another important feature of a cash advance is that there is no grace period; this means that you have to pay interest from the day the transaction is completed. The interest is accrued from the day on which the cash advance is issued. Even when you pay all your outstanding balances in full, you will have to pay the fees associated with the advance. If you want to ensure that you make the most of the advance, you need to pay off the amount at the earliest so that you can save up on the interest. If you use an ATM for the transaction, you will have to pay the ATM fees as well.
You need to understand that cash advance is very different from the purchase balance on your card. In case you are carrying both the balances (cash advance balance and purchase balance) on your card, you will end up paying more than the minimum amount. If you only make the minimum payment on your credit card, it will be applicable to the balance that has the lower interest rate. Not all card issuers follow this rule. Ask your credit card company about this before applying for a card advance. Once you make a payment, which is above the minimum, it will be applied against your cash advance. Hence, with a cash advance, you pay the cash advance fees, ATM fees, and a higher interest rate. A cash advance can turn out to be expensive if not paid on time. It has a higher interest rate and paying the minimum balance does not really help. Read the terms well before you take a cash advance.
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