Do you know that different types of credit card transactions, other than withdrawing cash from ATMs, qualify as cash advances?
Most credit cards give you the facility to get cash or a "cash equivalent" using your account. Known as "cash advances", these transactions often attract a higher interest rate than purchases. Cash advances also come with other restrictions, such as not being eligible for interest-free days or rewards points. Along with the higher interest rate and restrictions, these transactions can also attract additional cash advance fees.
What is considered a cash advance?
The following credit card transaction types may qualify as cash advances, and every such transaction attracts a given card’s cash advance rate.
- ATM withdrawals. Using your credit card to withdraw money from an ATM is a cash advance, and if you use a non-network ATM you may have to pay additional ATM fees.
- Cash out with a purchase. A number of stores give you the ability to get cash out, no matter whether you make an accompanying purchase or not. In any such situation, prepare to pay the cash advance rate on the cash out amount.
- Gift cards and prepaid cards. Most issuers consider the purchasing or loading value onto a gift card or other prepaid card as a “cash equivalent” transaction that is subject to the cash advance fee and interest rate.
- Gambling transactions. If you feel that using your credit card for gambling transactions is a good idea, think again. When you use your credit card at a physical or an online casino, expect your card issuer to charge the cash advance rate. Don’t be surprised if you have to pay the cash advance rate even on money you spend eating and drinking while at a casino.Credit card cheques. Certain credit card issuers send cheques to cardholders that they can use to withdraw money from their accounts as and when they like. While using such cheques can be tempting, you may want to reconsider to avoid the cash advance rate.
- Buying foreign currency or traveller’s cheques. Using your credit card to buy foreign currency or traveller’s cheques is not a good idea, because such transactions attract your card’s cash advance rate. Instead, if you're going overseas, you should look into a card specifically designed for travel.
- Bill payments. Using your credit card to pay bills is convenient, but find out if you would have to pay your card’s purchase rate or cash advance rate for the same. Making bill payments via BPAY, for example, classify as purchases, and not cash advances.
- Balance transfers. A number of Australian credit cards come with balance transfer offers, giving cardholders the ability to save money in the form of interest. In many such instances, outstanding balances from balance transfers start attracting the card’s cash advance rate at the end of the promotional period. As a result, if you don’t repay the balance completely before the introductory period ends, you could end up paying more than you initially expected.
- Transferring between accounts. When you use your credit card account to transfer funds to another account, your card issuer will view it as a cash advance. Instances of this include repaying a loan taken from a friend, transferring money into your everyday banking account, and in some cases, even transferring funds using phone banking. A good way to avoid paying interest on such transactions is to use your debit card instead. If you do plan to use your credit card for electronic transfers, it’s good that you review the fees and charges at the onset.
An easy way to do this is to look for the BPAY logo on your bill. The presence of the logo indicates that you can use BPAY. If not, you can visit the BPAY website to confirm if your biller appears on the list of accepted billers.
Where can I find the cash advance fees and charges?
Most credit card issuers will charge both a cash advance fee and cash advance interest rate on any of the transactions listed above. If you want to know what you'll be charged, you can usually find these details in the product disclosure statement or terms and conditions under "fees and charges". If you're still unsure, If you’re still unsure, contact your credit card issuer to confirm what rates and fees apply before choosing a credit card or performing any cash advances.
What else should I consider before conducting a cash advance?
If you plan on using your credit card for cash advances, pay attention to the following:
- Will you earn reward points? Typically, you won’t earn reward points for cash advances, unless a credit card comes with some kind of a promotional offer.
- What are the conditions when travelling overseas? If you’re considering using your credit card your cash advances when travelling overseas, take into account that you could have to pay extra in the form of ATM fees and international transaction fees. There are some cards that offer lower foreign transaction and currency conversion fees.
- What other options are there? If you don’t need money in a hurry you can consider getting a personal loan, and you can even ask your bank if it can provide a line of credit or an overdraft facility.
Credit cards generally aren’t designed to be used as an ATM card. So if you think that you’ll regularly perform cash advances, you may want to consider another option to avoid accruing high fees. Regardless, make sure to read the terms and conditions before applying to ensure that you’re not confronted with any nasty surprises when you get your hands on the card.
Frequently asked questions
Is there a limit to how much I can get as a cash advance?
Expect your credit card to come with minimum and maximum cash advance limits. The minimum could be around $20, and the maximum would depend on your card’s credit limit and your card issuer’s discretion.
What is cash advance fee?
Your credit card issuer can charge a fixed dollar value or a percentage of each cash advance as cash advance fee. This normally applies on all ATM withdrawals, transfers, and making cash equivalent transactions.
I’ve used my new credit card to make purchases and for cash advances. Can I repay the balance from the cash advance first?
As a general rule, your credit card issuer has to allocate your payments to amounts that attract the highest interest first. Since cash advances attract higher interest than purchases, you can expect your payments to automatically go towards the cash advance balance first.