What does Cash advance mean?
Cash advances are loans, in cash, taken out on a credit or debit card or a line of credit, using a bank withdrawal, an automated teller machine or so called “convenience” checks. These types of advances usually come at a great disadvantage from the consumer’s point of view. The client can not take the cash advance for the entire amount of his or her credit total.
Also credit advances have interest rates that significantly surpass other banking rates that are on balance transfers or even purchases.
If the consumer is carrying balances with both low interest purchases and high interest cash advances on the exact same credit card, the payment is applied to the low interest rate balance first, which increases the overall total interest rate cost. This is the current industry practice.
In order to complete a cash advance the client must pay a transaction fee, which is usually a percentage of the current cash advance. This is calculated and charged automatically.
A cash advance does not generally have a grace period. This initial phase is usually there so consumers are not charged for interest, but since this is not applicable most of the time, it means that clients will incur financing charges even from the first day of the transaction up until the cash advance is repaid.
The interest charged on this type of loan is a fixed number of percentage points way over the prime interest rate. All these factors combined make ash advances a lot more pricey than other kinds of debt financing.