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The high price of cash-advance convenience checks

No grace period, steep fees and rates make them an expensive choice

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Convenience checks, those blank checks that may arrive with your credit card bill, can tempt you with their offers of extra cash: "Consolidate bills now!" "Imagine the possibilities!"

Simply sign the convenience check, sometimes called a cash advance check or access check, and you can pay a bill or make the check payable to yourself for easy money. There's no paperwork to fill out and no waiting for an answer on whether you'll get the money.

Convenience checks' high price

"The checks put the lender right there in your mailbox," says Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling. "They're essentially saying, 'Yes we approve.'"

Convenience checks are not to be confused with balance transfer checks, which are intended to get you to transfer balances from your other credit cards, says Erika Safran, a New York-based financial planner. Convenience checks usually carry higher interest rates than balance transfer offers or checks, making them a costlier way to conduct balance transfers in most cases.

But proceed with great care, experts say. Cash advance convenience checks are also an expensive way to get quick cash, which is their intended purpose. "They are often marketed by lenders as an easy way to pay bills, shop, take a vacation, make home repairs," says McClary. "They look just like personal checks. They come in sheets, have routing numbers and can be used at the time of sale just like a personal check. But if you pull back the curtain, that's where the similarity ends."

High fees
The first difference comes in the form of fees when you use convenience checks. Transaction fees can be as high as 5 percent. At 5 percent, you'll pay $50 if you write a convenience check for $1,000.

"Transaction fees are things people often don't figure into the mix," McClary says. "That's the first fee that sneaks up on people."

No grace period
The second financial hit is immediate interest. If you pay your credit card bill in full every month, you get an interest-free grace period, or float, between when you make a purchase and when the bill is due. But interest begins to accrue as soon as you use a convenience check, says Luke Reynolds, chief of outreach and program development at the Federal Deposit Insurance Corp.'s Division of Labor and Consumer Protection.

Even if you usually pay off your credit card balance before the bill comes due, using a $1,000 convenience check on a card with a 12 percent APR could cost you $20. Fail to pay the full balance and you'll pay even more in interest charges.

Higher interest rate
A higher interest rate -- up to 25 percent -- is another danger, McClary says.

Admittedly, the checks may come with a lower promotional interest rate. "But understand what the promotional rate is, how long it lasts, what the rate may become, how you can lose that promotional rate earlier," Reynolds says.

"People don't read the fine print," says Sarah Chenven, director of programs and strategic initiatives for Credit Builders Alliance. "The interest rate can be one-and-a-half to two times the interest rate for regular debt on the credit card. Even if they're offering a deal for three months or six months, people don't realize that six months later, the interest rate skyrockets back up."

Or, a late payment could trigger a higher interest rate immediately, Reynolds says.

People should ask themselves, Chenven says, "'Can I actually take advantage of that good deal by paying off the debt in that time frame?' If not, the debt can spiral out of control," she says. "The problem is, people get into that cycle. They don't use convenience checks just once. People get sucked in by the easiness of it. It's a dangerous precedent because of the cyclical nature and because of human nature."

Perhaps the biggest danger with convenience checks is that they can encourage impulse buying and tempt borrowers to pay living expenses, such as utility or rent bills, on credit.

-- Christopher Peterson
University of Utah in Salt Lake City

Over-limit risk
Using a convenience check without being careful also could put you over your card's credit limit, McClary warns. "The check might not even be honored, which could trigger a returned check fee," he says. "Or it might be honored but then you might get ... penalty interest rates and you might not be able to make any more charges on your credit card until you pay it down. It can really unravel."

Loss of protection
Unlike purchases made directly with your credit card, a purchase with a convenience check is not covered under the Fair Credit Billing Act, a law that gives you the right to withhold payment on defective goods you bought with a credit card, McClary says.

"If you use a convenience check to buy a product and you're not happy with it later or to pay for a service you're not pleased with, you can't withhold payment," he says. "You have to be careful. Some of the protections that come with credit card purchases are not there for you with the convenience check."

Check the fine print
If you decide to use a convenience check, examine your credit card issuer's rules to make sure the check will be honored, Reynolds says. For example, the checks also may have expiration dates and limits on the types of merchants you can use them at, McClary says.

"It's really important that consumers read all the disclosures that are provided and read their credit card agreement to understand what the use of the convenience check may cost them," Chenven says.

Shred them and call
Even if you don't use them, convenience checks in your mailbox are a target for identity thieves, McClary says. If you're now convinced that convenience checks aren't for you, shred any that you have on hand, Chenven says. That prevents thieves, or you in a weaker moment, from using them, she says.

"For people who don't have a lot of control when it comes to their spending, these things are the most toxic product I can think of," McClary says. "But they're a very lucrative product for the creditors."    

See related: How to use the grace period to avoid paying interest, Regretting your recent cash advance? You're not alone, 10 times NOT to use credit cards

Updated: March 5, 2015


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Updated: 12-05-2016


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