Cash Advances Interview with KOMO Radio Seattle
CreditCards.com Senior Industry Analyst Matt Schulz spoke on Wednesday, June 3, 2015, with Herb Weisman of KOMO Radio Seattle about the results of the June 2015 Cash Advances survey. The interview and transcript are below.
Herb Weisbaum: Let’s be honest – sometimes you just need a small loan to get you through a little cash flow problem. A cash advance on your credit card may seem like the smart move and it could be as long as you understand how these loans work and how much they really cost. The folks at CreditCards.com just did a survey of 100 major cards and they found that a cash advance can cost a surprising amount of money. And on the Consumer Line with us right now is Senior Industry Analyst at CreditCards.com Matt Schulz. Matt, nice to have you on the show again.
Matt Schulz: Thanks for having me.
Weisbaum: So Matt, you looked at these 100 cards, how would you summarize what you found?
Schulz: High interest rates and a lot of fees. The average interest rate on one of these cash advances is 24% and that’s a lot higher than your average credit card purchase interest rate, which is about 15%. And they also come with upfront fees and the most typical fee that these come with is 5% of the total transaction or $10, whichever is greater. So you add all that up and that’s a lot of money.
Weisbaum: And speaking of the interest rate, which is incredibly high, 24% on average vs. 15%, that kicks in immediately. Soon as the cash comes out of the ATM, the clock starts ticking, there’s no 30 day grace period.
Schulz: Yeah exactly. You’re charged interest immediately with these cash advances unlike with a regular credit card purchase so that can make those super high interest rates an even scarier proposition.
Weisbaum: Now as I said, you surveyed 100 cards and you found that some have significantly higher than 24% APR. What were the highest cards you found?
Schulz: We found that the First Premier Bank credit card had cash advance APR of 36%, which is really high. And we found a few others that were right around 30% and those are all gas station credit cards, which we have seen in previous surveys definitely come with higher standard APRs than your regular credit cards. So that wasn’t too surprising to us.
Weisbaum: So BP, Texaco Visa cards were 29.99 and Exxon Mobile’s Smart Card was 29.95 – again, significantly higher than the average APR of 15% charged on purchases.
Schulz: Exactly. You add all of that up and you see that cash advances can be the best of a bunch of really bad options when times get tough, but they’re definitely something to avoid under normal circumstances because of the high interest rates, because of all the fees.
Weisbaum: I think that’s really good advice. One other thing that’s really important for people to know, if you’re stretched and taking out a cash advance there’s a very good chance, a very good likelihood that you are just making a minimum payment on the unpaid balance. How does that play into how you repay this?
Schulz: That’s an important thing that a lot of people don’t recognize, which is that if you only make the minimum payment on your credit card that minimum payment amount will only be applied to the portion of your balance that has the lowest interest rate. So if you have a balance with say a 0% balance transfer and a cash advance balance that’s 25%, the minimum payment that you make will be applied to that 0% balance instead of the high interest balance and that just means that your debt can grow really quickly.
Weisbaum: I mean the clock on that cash advance could run for years in a situation like that.
Schulz: Yeah, it sure can and that’s just another reason that it’s so important to make more than the minimum payment.
Weisbaum: Matt, one other point I want to make this really important – some people may have actually taken out a cash advance and don’t even know it because those convenience checks that you so conveniently get in the mail from your credit card company are really a form of a cash advance. And a lot of people may not realize that.
Schulz: Yeah, I think you’re right on that. And they are used quite a bit. Maybe not as much as they used to be, but they’re still pretty common. And all of the high interest rates, all of the fees, and all of the kind of quirky rules that go along with cash advances are triggered when you use one of those convenience checks.
Weisbaum: So they’re convenient for the credit card company, maybe not convenient for you.
Schulz: That’s exactly right.
Weisbaum: Matt, so much good information, thank you for sharing it with us.
Schulz: Thank you very much.
Weisbaum: Matt Schulz is Senior Industry Analyst at CreditCards.com and I’ll put a link to their full report with this week’s show notes. Just head to my website, ConsumerMan.com, look for the blue radio box on the top right hand side of the homepage.