Everything You Need to Know About Credit Card Cash Advance

Thinking about getting a cash advance? Think again. Cash advance comes with high fees and interest, so you shouldn’t get one unless you’ve exhausted all options.

Joyce Chua

by Joyce Chua on Jun 7, 2024

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The process of obtaining cash by using a credit card is known as cash advance. Cash advance is bad for customers, and we recommend against using it. You should only resort to this process after you have exhausted all other methods of getting cash such as withdrawal from a savings account. Cash advance comes with high fees and interest, which you are charged the moment you receive money. This cost is often so high that it negates any short-term benefit you may receive from cash advance.

Here’s what you need to know about getting a cash advance.

Table of Contents

How A Cash Advance Works

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You can take cash advances by using an ATM, a convenience check or with a bank teller. To take a cash advance from an ATM, you need to have a PIN. If you don’t have a PIN set for your account, call the customer care service of your card provider and ask them to set a PIN for your account. Once you get the PIN, the process of taking the money out is the same as using debit cards.

Lastly, you can use a convenience check to take a cash advance. You may have received these cards before. Often credit card companies send convenience checks with special offers to their customers. Convenience checks can be used similarly as ordinary bank checks. Unless the convenience check is attached with an offer such as 0% APR for five months, we advise you to avoid them.

How much money can you get using a cash advance? The answer depends on your card issuer and your FICO credit score. The higher your FICO score, the more money you can take out using a cash advance. The highest amount you can take out is your credit limit minus the cash advance fee. Some banks set a different cash credit limit which is usually a percentage of your credit limit.

The Cost of a Cash Advance

To get a cash advance, you have to pay an upfront fee and a different APR. Usually, the upfront fee is the greater of S$15 or 6%. For most credit cards, a cash advance of up to S$250 will cost you S$15 in upfront fee. If the withdrawal is larger, the fee will be 6%. The total balance of your account is the sum of the cash advance and the upfront fee. This point is important since your cash advance APR depends on it. Your cash advance balance and the balance from purchases are not the same. The cash advance balance charges higher interest rates from the moment you get the money. There is no grace period for cash advances.

We examined the credit cards in our database and found out that on an average the cash advance APR is around 29%, much higher than the purchase APR. The average purchase APR lies around 25%. Let’s calculate how much a 29% APR will cost you. If you take a $1,500 cash advance on the first day of your billing cycle, the upfront fee will be S$1,500 x 6% = S$90. The interest for the first month is 2.4% of $1500= $36. The calculations for the next 6 months are given below:

In six months, you’d end up paying 17% in interest. So, the total fee you will pay for a S$1500 cash advance in six months is S$90+ S$230= S$320. This is why we don’t recommend cash advances. They can cost you a lot if you are unable to pay off the debt quickly.

Things You Should Be Careful About When Taking a Cash Advance

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How Funds Are Applied

When you make a minimum payment using your credit card, the funds are applied to your purchases. This happens since most credit card issuers direct minimum payments toward items accumulating lower interests. You can’t target items while making your payments. You can’t request for funds to pay off your cash advances before your purchases. However, by law, any payment that exceeds the minimum has to be applied to the highest APR balance. If you must take a cash advance, we advise that your next payment be the minimum + the cash advance. It is best if you can pay the whole debt off.

Special Purchases

You have to be careful about certain purchases. Banks consider certain purchases as cash advances even though you didn’t take the money out from an ATM or using a convenience check. Following is a list of purchases that can be treated as cash advances:

  • Lottery tickets
  • Cash equivalent purchases on PayPal
  • Traveler’s checks/money orders
  • Foreign currency
  • Casino gambling chips

Sometimes transferring funds to a PayPal account may be considered as a cash advance. This applies when you use PayPal to buy certain items such as gift cards that are categorised as “cash equivalents”.

Where to find the information you need: It is impossible for us to compile the different terms and conditions of all the credit cards available in Singapore, but you can look through the terms and conditions of specific credit cardd and pinpoint the information you need to find to understand their rules about cash advances. The terms are frequently updated so you must go through them before taking a cash advance.

Cash Advances from the Card Issuer’s Viewpoint

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Banks and credit card companies charge high fees and interest rates for cash advances because it is a high risk deal for them. The consumer may fail to repay the loan. When you buy anything using your credit card and fail to pay off the debt, the credit card company can’t easily repossess the purchased item and recover the loss. Therefore, banks charge high fees and interest to offset the high risks associated with cash advance.

If you’re looking for ways to manage debt, check out our roundup of the best debt consolidation plans in the market today.

Compare Best Debt Consolidation Plans in SingaporeFind Out More

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