Cash Advance facility on credit cards is method to avail loan on your credit card account. All the banks/FIs allows their customers to withdrawal an amount equal to less than the credit limit available on the card.
The bank/FI block the credit limit equivalent to the withdrawal amount until the amount is recovered including the applicable interest and charges.
Cash advance can be your go to option in case of an urgency of funds since you don’t need to go through the hustle of filling a form and asking the bank for permission. However, it can be the most expensive method to borrow the funds as well, depending upon the interest rate levied by the bank/FI. After borrowing the amount, the cardholder can pay off the debt using the revolving credit facility, just as like the purchases made on the card. Although, it is important to know that interest rate applicable on withdrawal amount is usually higher than the purchases made on the credit card by swiping.
The interest rates applicable on the cash advance transactions is usually 1% to 2% higher than the retail purchases made on the credit card. There are no such bank/FI which offers lower interest rate on cash advance amount than retail transactions, either it’s equal to the interest rate applicable on the retail purchases or higher than it.
The amount you withdrawal from your credit card account, not only comes with interest rate but banks/FIs also charges cash withdrawal fee for withdrawing cash at the ATM. This amount varies depending if the transaction is made at a domestic ATM or an international ATM.
Unlike the retail transactions made on the credit card by swiping it which comes with an interest free period of 20 to 50 days, the cash advance transactions attract interest rates from the date the transaction is registered to the credit card account. Hence, the card holder end up paying more amount as compared to an equivalent retail purchase made on the card.
The credit limit equal to the amount that has been withdrawn from the credit card account is blocked by the Bank/FI until the repayment of the withdrawn amount is received. For an example, if a credit cardholder carries a credit with a credit limit equal to Rs. 50,000 and withdrawal Rs. 10,000 at the ATM, then the available credit limit is reduced to Rs. 40,000 and will be restored by the bank/FI as quickly as the cardholder pay off the debt.
Since cash advance transactions are considered as the loan borrowed on the credit limit, the cardholder now has to pay off an increased EMI amount which includes both, the minimum amount due against the retail purchases made on the credit card by swiping plus the minimum amount due against the cash advance transaction. Since the bank/FI clears the credit card payment against the retail purchases first and then the other outstanding dues like cash advances, balance transfer, additional charges, and the cardholder keep paying the regular EMI amount then the cash advance dues are kept standing until the dues against the retail transactions is cleared. Where, the standing amount in the credit card account attracts the additional interest rate each month, if would become impossible for cardholder to get free from the card debt.
Personal Loan is one of the best options against cash advance service. The interest rates applicable on personal loan ranges from 11% to 26% per annum as compared to the interest rate ranging from 13% to 32% per annum applicable on cash advances. However, the personal loan takes time to be processed by the bank/FI since they check your credit score and repayment history and then process the funds to the applicant, which usually takes 3 to 5 days depending upon the bank/FI.
Moreover, availing a personal loan includes documentation which sometimes can take a long time if you are availing a secured personal loan.
Or, you can simply ask for help from any of your close relative or friend without the need of paying the interest.