The Credit Guy

Personal loans vs. credit card cash advances


For one-time events such as a wedding, go with the loan — the rates are usually much cheaper.

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The Credit Guy columnist Todd Ossenfort

Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.

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Question for the expert
Dear Credit Guy,
Are there any current credit cards that will allow you to “write a check” (get cash out similar to a loan)? I have seen offers in the past, but am not sure about it now. I have excellent credit, use only a debit card, but need to get cash out to pay for my daughter’s wedding. Thanks. — Gary

Answer for the expertDear Gary,
Congratulations on your daughter’s upcoming wedding. The short answer to your question is yes, most bank cards will offer cash advances with a check or by using the card to withdraw cash from an ATM machine, depending on the amount needed. However, using your credit card to get cash is typically the most expensive way to borrow money using the card. The interest rate for cash advances on a bank card are usually in the double digits and often as high as 20 percent to 30 percent.

A better, less expensive option for you may be to apply for a personal loan at your bank or credit union. With your excellent credit, you should qualify for a loan with a much lower interest rate than what you would pay using cash advances from a credit card. With the average cost of a wedding topping $20,000, the difference between a cash advance interest rate and a personal loan interest rate could translate into thousands of dollars in savings.

For example, a $20,000 cash advance at the low end of the interest rate scale of 20 percent would cost you $9,213 in interest payments alone if you paid the balance due in four years. A personal loan with a much more reasonable rate of 10 percent for the same $20,000 would cost $4,348 in interest charges over the four-year repayment period. That’s a savings of $4,865.

Speaking of repayment — I hope you have a plan in place to pay off what you borrow to give your daughter the wedding of her dreams. I understand your desire as her father to pay for the wedding, but I would not advise you to move forward unless you know you will have the funds in the next three to five years to pay off the wedding debt. Using the same example as above, the monthly payment for a four year, $20,000 personal loan at an interest rate of 10 percent would be $507.25. Obviously, the payment would increase if you spend more than $20,000 and decrease if you spend less.

I would encourage you, if you haven’t already, to sit down with your daughter and determine a budget for her wedding based on what you can comfortably afford to pay off in a three- to five-year period. I wouldn’t recommend stretching the payment period out any further than 60 months.

It is a very natural inclination to give a daughter everything she wants. Trust me — I have two daughters of my own. But when it comes to her wedding, I am sure she wouldn’t want you to face financial hardship in order to make that happen. I’m sure that the two of you can plan a beautiful wedding that will be both within your ability to pay and what she really wants.

Take care of your credit!

See related:$65,000 cash advance for friend goes unpaid, Cash advances for home down payments?

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