2015 Cash Advance Survey: Convenient cash will cost you plenty
Issuers immediately charge big upfront fees, high interest rates
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Editor's note: For the latest credit card cash advance cost information, see "Cash advance survey 2017: Read fine print before seeking quick cash."
If your checking account is running on empty, a credit card cash advance can fill your cash void, but use with caution, as the transactions come with steep extra costs.
A CreditCards.com survey of 100 credit card cash advance policies found this convenient feature can quickly consume an available credit line with fees and higher-than-normal, immediate interest rate charges.
The survey's major findings are:
- The average cash advance APR is 23.53 percent -- 8.54 percent higher than today's average 14.99 percent purchase APR.
- Unlike traditional credit card purchases, cash advance transactions begin accruing interest the second the cash hits your hand. None of the 100 cards gives a grace period to cash advances.
- In addition to higher-than-normal APRs, 98 out of the 100 cards surveyed charge a fee for each cash advance transaction -- typically 5 percent of each transaction or $10, whichever is greater.
- You may be taking out a high-cost cash advance and not even know it. In addition to ATM withdrawals and convenience checks, wire transfers, money orders, legal gambling purchases and bail bonds are often treated as cash advances if paid via credit card.
- As a final insult, cash advances intensify the pain of borrowing, but take away one of its small pleasures: All major issuers exclude cash advances from earning rewards.
'Best of the worst' options
While expensive, credit card cash advances can be helpful and easier to manage than other quick cash options if you're desperate for extra funds.
"I guess you could say they are the better of multiple evils," said Kevin Weeks, president of the Financial Counseling Association of America. "Payday loans are brutal, title loans are just as brutal and a cash advance on your credit card is, too, but it's the best of the worst."
Card issuers contacted by CreditCards.com would not release information about the total volume of their cash advances, but a 2013 report by the Consumer Financial Protection Bureau put the total amount dispensed at $4 billion in the fourth quarter of 2012, with fees gobbling $209 million of that sum. Both the volume of cash advances and fees it generates are declining, the report said. About 3 percent of all credit card holders used cash advances in 2012.
Although the practice is declining, it still persists, according to newer data. A Federal Reserve survey of 1,968 such consumers by the Federal Reserve. Of the subset of cardholders who carry a balance, the survey found 11 percent of them had taken a cash advance in the past year.
High rates for quick cash
Consumers who take cash advances with a credit card will pay for that quick, convenient service, regardless of whether they have good credit and a low purchase APR.
Only 13 cards base individual cardholder's cash advance APRs on creditworthiness and none offer cardholders an APR lower than the corresponding purchase APR. Most cards -- 86 out of 100 -- charge a cash advance APR higher than 20 percent.
Among the cards surveyed, those with the highest cash advance APRs are:
- First Premier Bank credit card: 36 percent
- BP Visa and Texaco Visa: 29.99 percent
- ExxonMobil SmartCard: 29.95 percent
- Shell Platinum MasterCard: 27.99 percent
Cost of a $1,000 cash advance
Even if you pay it off quickly, cash advances are costly compared to credit card purchases. For example, if you purchase a $1,000 item on a credit card with a 14.99 percent rate -- today's national average for new cards -- and pay it off in 30 days, you'll pay $1,000. You escape paying interest, thanks to the grace period. But a $1,000 cash advance under the typical terms our survey found will cost you $69.34. That includes the $50 upfront fee, and $19.34 for 30 days' interest at 23.53 percent.
"The calculations are different from what consumers are normally accustomed too," said Tom Feltner, director of financial services for the Consumer Federation of America, because you have to add in the instant interest and the fee. "Those two features make it a little more difficult to understand the cost of borrowing with cash advances."
So why do issuers charge a different, higher APR on cash advances? According to experts, the explanation is twofold.
Payday loans are brutal, title loans are just as brutal and a cash advance on your credit card is, too, but it's the best of the worst.
Financial Counseling Association of America
"First, issuers consider them riskier transactions," Weeks said. "If someone is at the point of using their credit card for a cash advance, obviously they don't have any cash available in a bank or cash reserves elsewhere, so when issuers view it that way, it's riskier debt."
Second, card issuers financially benefit from the higher cost of convenience.
"I don't want to say cardholders are being taken advantage of, but the fact is, people who are in tough situations who need more money will pay more for relief and creditors know that," Weeks said.
Beware the fine print
Many people have probably taken a cash advance without knowing it. The paper "convenience checks" that many credit card issuers send customers in the mail are one prominent example. Wire transfers, money orders, legal gambling purchases and bail bonds are also often treated as cash advances if paid via credit card.
"It can be difficult for people," Weeks said. "How often do you really read the fine print on something you buy or use? All that fine print is threaded into the agreements people sign, but most don't read it. It's a 'buyer beware' situation, really."
The CreditCards.com survey found 75 cards define cash advances as more than just ATM withdrawals, including wire transfers, money orders, legal gambling purchases and even bail bonds.
"I would add the purchase of a gift card to that list as well," Feltner said. "At certain institutions that may count as a cash advance, too."
The survey also found 19 cards vary transaction fees depending on the type of advances cardholders make. For example, U.S. Bank uses the following cash advance fee structure:
- Cash advance (ATM or in-person at bank): 4 percent of each advance or $10, whichever is greater.
- Convenience check cash advance: 3 percent of each advance or $5, whichever is greater.
- Cash equivalent advance (Wire transfers, traveler's checks, cashier's checks, money orders, foreign cash transactions, casino gambling and betting transactions and lottery tickets): 4 percent of each advance or $20, whichever is greater.
"Don't always assume that just because you are swiping a card or typing in a number that it's not a cash advance," Feltner said. "If you are purchasing a cash equivalent, check with the issuer to learn what constitutes a cash advance versus a normal purchase."
Payment allocation may boost costs, too
Paying off a high-interest cash advance can take even longer if you already carry a balance, due to the way many card issuers allocate payments. As allowed under the federal Credit CARD Act, when multiple balances are present, issuers may allocate the minimum payment to the part of the balance with the lower rate. This allocation method slows the pace at which high-rate balances are paid off, boosting interest costs for cardholders
"Never take a cash advance and then pay less than the minimum, but that's what I say about any purchase on a credit card," said Linda Sherry, director of national priorities and spokeswoman for Consumer Action, a consumer education and advocacy organization. "Unless you are out of work and in a very precarious financial situation and trying to protect your credit, it's almost a waste to just pay the minimum."
Make cash advances wisely, if at all
To prevent large credit card bills you can't afford, only use a credit card cash advance in an actual emergency situation when there are no other quick cash options.
"Getting more money out at a casino is definitely not an emergency," Weeks said. "In fact, you probably should have left a couple hours ago if it feels that way. That's not an emergency situation, but getting yourself or someone else out of jail might be. It all depends."
Always avoid taking out cash advances to cover ongoing expenses, or you risk becoming reliant on an expensive crutch.
"Look at your budget and if you are going to turn to a cash advance, make sure it's not going to become a recurring activity," Feltner said. "The fees are much higher and they are going to compound over time and result in an escalating level of debt if it's something you do again and again."
However, if you're not already carrying a balance on your card and you're aware of what you're getting yourself into, cash advances can be a helpful tool in a tight financial spot.
Don't always assume that just because you are swiping a card or typing in a number that it's not a cash advance.
Consumer Federation of America
"If you have a clean card and you want to make a cash advance, that makes sense," Sherry said. "You are in control then. Then you know what it would take you to pay it off in say, two weeks. It's not a killer; Sure, it's high interest, but it's not as bad as what you may get handed from a payday loan lender. If you need a few days more to repay the advance, that's OK. You have that flexibility as long as you make the minimum payment."
"Cash advances come with the protections of the CARD Act like typical card purchases," Feltner added. "So while cash advance rates are higher, they do provide a much lower cost option than other riskier types of offers."
Depending on how large your transaction and your credit score, another funding option such as a personal loan from a bank may be a more cost-effective use of credit. Better yet, work on building up an emergency fund for life's unexpected expenses.
"Of course, I would say in the end, to draw from a savings account is so much better than any of those other options out there," Sherry said. "Just save, save, save."
The Credit Card Cash Advance Survey of 100 U.S. credit cards was conducted in May 2015 by CreditCards.com. The 100-card survey pool is the same group of cards used to calculate CreditCards.com's Weekly Rate Report, and is a representative sampling of cards from all major U.S. card issuers. Information was gathered from the cards' terms and conditions documents, any publicly available cardholder agreements and phone calls to issuers.
The average cash advance APR was determined using the rates provided by 98 cards, excluding two cards that set individual cardholder's cash advance rates based on creditworthiness and purchase APR. For the cards with a range of cash advance rates based on cardholder creditworthiness, the lowest possible APR was used in the average rate calculation.
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