The Mozo Answers forum has been buzzing recently with questions about credit card cash advance rates. Such as “what is a credit card cash advance rate?” and “are cash advances a good idea?”
Trying to decipher all the mumbo jumbo that credit card providers use can give anyone a headache. So lets keep things simple, with a quick rundown on credit card cash advances:
What is a cash advance? A cash advance is a feature on a credit card which allows you to withdraw cash from an ATM or over the counter at a bank. It’s designed to help you make ends meet for a short period of time. We emphasise short!
Why would I need to use a cash advance? A credit card cash advance may be necessary in certain situations. You may need to pay for something in cash and your paycheck may be late or there has been an emergency while you’re overseas and you need cash fast. The reasons are endless…but make sure you can pay it all back – fast!
Why-oh-why is the interest rate so high? Ever heard the saying “there’s no such thing as a free lunch?” Well this is certainly the case with cash advance rates, as the convenience of instant cash comes with the whiplash of a high cash advance rate. Using our credit card comparison tool we found that of the 181 credit cards in our database only 20 offer cash advance rates under 15%. The lowest cash advance rate is offered by Community First McGrath Pink Visa at 9.99%, while the highest is GE Money GO MasterCard with a jaw droppingly high cash advance rate at 29.49%.
Is it a good idea to use cash advances? In most cases it is definitely NOT a good idea. As easy as it is to simply go to the ATM and withdraw cash from your credit card, the high interest rate is just not worth it. Only use the credit card cash advance feature if you know you have the option to pay your balance in full.
5 cash advance catches to watch out for:
1. There’s cash, then there’s cash! You may be surprised to learn that credit card cash advance rates don’t just apply to instant cash withdrawals from an ATM or branch. Other ‘cash’ payments like money orders, lottery tickets, any gambling money withdrawals and traveller’s checks may be considered a form of cash advance by your credit card provider. Be careful or you could be slapped with the high interest rate without knowing it.
2. Hidden fees: Most credit cards will have fees attached to cash advances on top of the high interest rate. This may be a percentage of the amount you are withdrawing of around 2% or a flat fee ranging from $1.25-$5 per advance.
3. No interest free days: You might be thinking, “but my credit card has 44 interest free days.” Unfortunately this usually doesn’t include credit card cash advances, which means you’ll be accumulating the high cash advance interest rate straight away. And that will hurt when your bill comes.
4. Cash advances are paid last: To make matters worse, most credit card providers require you to pay off the full balance amount due on the credit card before you pay off the cash advance interest. So you’ll be stuck accumulating that high interest until you’ve paid off everything else.
5. Low interest credit cards with high cash advance rates: Low interest credit cards are great for your everyday purchases, however don’t get the standard interest rate confused with the cash advance rate. While the standard interest rate may be as low as 10%, cash advance rates will usually be much higher, some can be as high as 22% on a low interest credit card.
It’s not all bad…Using our credit card comparison tool we’ve picked out a few low interest credit cards that also have low cash advance rates. And here are the stand-outs:
|Credit Card||Standard purchase rate||Cash Advance Rate||Cash Advance fee|
|Community First McGrath Pink Visa||9.99%||9.99%||$5|
|Bankmecu low rate||10.74%||10.74%||$3.50|
|ME Bank MasterCard||12.25%||12.25%||$1.25|
Stay tuned Mozonians! From the 1st of July 2012 the Australian Government is bringing in new credit card reforms to increase competition amongst financial providers. One of the reforms makes it mandatory for all credit card providers to direct credit card repayments to the highest debt first. So if you end up needing a credit card cash advance you’ll be able to attack that high cash advance debt first.
NAB is leading the way with this reform, as all NAB credit cards already pay off the highest interest first.