It’s a no brainer to use your credit card to make purchases in Singapore. Not only are credit cards accepted everywhere in Singapore, they also earn money for us in form of air miles and cash rebates. In fact, we use our credit cards so much that you may not even remember carrying around that much cash with you anymore. But, life sometimes comes at you at the most unexpected moments and places. What if you are in a pinch and you need more cash than you currently have in your checking or savings account? Or what if you need cash and you don’t have cash or your debit card for the ATM machine? Sometimes, life comes at you at the most unexpected moments and places and you can’t prepare for every possible thing that may happen in the future.
Occasions like these are when a cash advance may come in handy. Just by using your credit card at an ATM machine, you can get the cash you need immediately. While it is convenient, taking a cash advance may not be a smart financial move for everyone. Cash advance is a dangerous proposition, and you need to carefully weigh all the pros and cons of using a credit card cash advance beforehand. Take a look at the information below to see if using a cash advance is right for you.
Pros of Cash Advances
- Fast: You can get cash pretty much immediately at an ATM machine, no approval process is necessary
- Can Payback ASAP: It doesn’t matter how much you borrowed, you can pay it back whenever as soon as you can in order to minimize accruing interests. There’s no penalty for early repayment.
Cons of Cash Advances
- High Cost: Cash advances are extremely expensive, with upfront processing fee as well as daily compounding interest rate that is high to begin with.
- Small Size: Cash Advances are typically capped at a couple thousand dollars, depending on your financial history.
What Are Cash Advances?
To put it simply, cash advances are short-term loans that you can get through your credit card, up to a certain amount. You may wonder, how is this different from just using a credit card to buy something? The key difference is that, when you cash advance, you are getting physical cash in your hand so that you can pay people who may not take credit card payments. An uncountable number of situations might necessitate such a method. Maybe your car broke down, or maybe you a hawker food stall you really want to eat at doesn’t take credit cards. If you don’t have cash or an ATM card in these situations (or perhaps you don’t have enough money in your checking account), you can go to an ATM or a bank, and use your credit card (rather than your debit card) to get the cash.
Because it provides cash to you immediately, a cash advance can be a decent option if you need cash right away and you don't have enough cash on hand. If you are facing an unforeseen emergency or a one-time expense that cannot be paid for by your checking or savings account, using a cash advance may be the answer.
Cash Advance vs ATM Debit Card
Although a cash advance may feel quite similar to using your ATM debit card, they are actually very different. When you use a debit card, the money is withdrawn from your checking account free of extra charge to either provide you with cash (at an ATM) or to pay for your purchase. If you don’t have enough money in your account, the transaction is usually declined. In contrast, a cash advance will show up as a charge to your account, and will cost you money in fees and interest typically higher than a regular credit card purchase.
Average Cost of Cash Advance
A cash advance is one of the “easiest” ways of borrowing money, but it’s also one of the costliest. This is because a cash advance come with its own unique set of fees and interest rates that don’t exist in other channels like ATM cards or personal loans.
|Bank||Cash Advance Fee||Interest Rate|
|HSBC||5% or S$15 (whichever is higher)||24% APR, charged daily|
|Maybank||5% or S$15 (whichever is higher)||24% APR, charged daily|
|American Express||5%||24% APR, charged daily|
|ANZ||5% or S$15 (whichever is higher)||28% APR, charged daily|
|Standard Chartered||6% or S$15 (whichever is higher)||24% APR, charged daily|
|UOB||6% or S$15 (whichever is higher)||28% APR, charged daily|
|DBS||6% or S$15 (whichever is higher)||28% APR, charged daily|
|OCBC||6% or S$15 (whichever is higher)||28.92% APR, charged daily|
|CIMB||6% or S$15 (whichever is higher)||28% APR, charged daily|
|Citibank||6% or S$15 (whichever is higher)||29.9% APR, charged daily|
First, there is an upfront cash advance fee that ranges from 5%-6% of the amount you want to borrow. This means that even a S$300 cash advance will cost you up to S$18 immediately, on top of the ATM fees.
Secondly, an even more punishing cost is the interest rate. While most credit cards in Singapore charge an Apr of around 25%, cash advances charge an APR of 29 to 30%. Not only that, interest on cash advances start to build up on the first day you take out cash from your credit card. This does not happen with normal credit card balances, which usually do not start charging you until after the monthly balance payment is due. Therefore, on top of the S$18 upfront fee, you have to pay another S$0.23 on the first day. While it may not sound like a lot of money, you have to be careful because this charge will build up every single day that you don’t pay off your cash advance. This means that if you decide to take a cash advance, you’ll need to repay it as soon as possible.
|You need to pay your debt over a year or longer|
Because cash advances are so expensive, you should really consider it as a last resort to get cash. Cash advances should only be used in extreme emergencies, and they should be paid back in full as soon as possible (hopefully within days). It may not hurt you too much if you are only taking out a few hundred dollars you need last minute; however, because interests are charged daily, it could quickly snowball into a huge problem if you borrow a bigger sum that you can’t pay off right away. Not only that, most banks only allow you to withdraw up to a few thousand dollars in credit card cash advance, so you can’t depend on your credit card to provide you with very much cash in the event of an emergency.
If you do find yourself facing a cash crisis and you’re not sure where to turn, consider the options below. None of them are ideal, but they’ll probably end up costing less than a cash advance in the long run:
- Friends and family: A friend in need is a friend indeed. Your friends and families are usually more willing to help than you might expect. Just make sure to not let them down; pay them back!
- Personal loan from a bank: it’s not as expensive as cash advance, and it’s much more manageable because interest payments are fixed at a predetermined rate. You don’t have to worry about paying off this debt as soon as possible because all monthly payments are scheduled; just make sure to follow it religiously.
- Overdrawing your checking account: if you don’t have enough cash in your checking account, consider just overdrawing on it instead of taking a cash advance. Of course there is a steep fee, but you won’t have to worry about ballooning interest charge.