Cash advance survey 2017: Read fine print before seeking quick cash

Cash advances from credit cards are convenient, costly and even sneaky, according to a new CreditCards.com survey. Cash advance survey 2017

A review of 100 credit card cash advance policies found cash advance transactions can quickly consume an available credit line with fees, high – and immediate – interest charges and come with terms and transaction limitations regular card purchases don’t. Cash advance survey 2017

The survey’s key findings include:

• The average cash advance APR is 23.68 per cent – nearly 8 percentage points higher than today’s average 15.79 per cent purchase APR.
• Cash advances begin accruing interest as soon as the transactions post to a cardholder’s account. None of the surveyed cards offer an interest-free grace period for cash advances.
• In addition to high interest rates, 99 out of the 100 cards surveyed immediately charge a fee for each cash advance transaction, typically 5 per cent of the transaction or $10, whichever is greater.
• You can unknowingly make a high-cost cash advance if you are unaware of your card’s cash advance terms. In addition to ATM cash withdrawals made with your credit card, wire transfers, money orders, legal gambling purchases and bail bonds charged to your card are often treated as cash advances. Cash advance survey 2017

Interest, fees unavoidable
If you make a purchase on a credit card but pay off the balance by the established due date, you can avoid paying interest, regardless of the APR (annual percentage rate) your card carries, thanks to the “grace period” card issuers offer under most circumstances. Cash advance survey 2017

Cash advance transactions are one of the exceptions. They don’t have this interest-free period, which – depending on your card’s APR (annual percentage rate) and the amount of the transaction – can be costly. Cash advance survey 2017

Unlike rates for credit card purchases, cash advance APRs are rarely based on cardholder creditworthiness. This means that while you may have a card with a low purchase APR, your cash advance rate is likely much higher. CreditCards.com found that 79 per cent of cards charge a cash advance APR greater than 20 per cent. The most common cash advance APR is 25.99 per cent, as charged by one-fourth of the surveyed cards. Cash advance survey 2017

And, just like interest, cash advance transactions are immediately assessed a fee, typically $10 or 5 per cent, whichever is greater. All but one card in this year’s survey – Pentagon Federal Credit Union’s Promise Visa – charge a fee for cash advance transactions. Cash advance survey 2017

“I think many people understand that a cash advance carries a higher APR, but what they might not know is that cash advances are also typically charged fees,” said Linda Sherry, director of national priorities and spokeswoman for Consumer Action, a consumer education and advocacy organisation. Because of this, “Reading card terms is really important,” she added. Cash advance survey 2017

While cash advance fees are all but guaranteed when cardholders seek quick cash, the fees can vary depending on the type of advance made, as noted by 22 cards in the CreditCards.com survey. For example, US Bank charges a 3 per cent or $5 minimum fee for convenience cheque advances, while ATM cash advances are charged a 4 per cent or $10 minimum fee. Cash advance survey 2017

While the most recent figure indicating how common cash advance transactions are dates back to a 2015 Federal Reserve report, new issuer fee income data indicates cardholders are actively seeking quick cash – and paying for it. Cash advance fee income accounted for 27 per cent ($26.6 billion) of the issuer’s fee income in 2016, making it the second largest source of fee income next to interchange fees, per industry data compiled by R.K. Hammer. Cash advance survey 2017

Minimum payments are not enough
The costs of a cash advance on a credit card can add up fast if you are also carrying additional balances, such as purchases or balance transfers, and revolving those balances month-to-month. Cash advance survey 2017

“The idea is pay more than the minimum because any amount exceeding the minimum goes toward paying down the balance with the highest rate, and if the cash advance has a higher rate, doing so will pay the cash advance down faster and save money,” explained Nessa Feddis, attorney and senior vice president for the American Bankers Association. “Merely making minimum monthly payments won’t significantly reduce the cash advance balance.” Cash advance survey 2017

If balance-carrying cardholders read their card terms closely, they will see how making only minimum monthly payments can work against them. CreditCards.com found phrases such as the following in 22 card terms, in regards to how card payments are applied: “Generally, we will apply your minimum payment first to lower APR balances (such as purchases) before balances with higher APRs (such as cash advances). Payments made in excess of the minimum payment will generally be applied to balances with higher APRs first before balances with lower ones.” Cash advance survey 2017

So how can you avoid getting stuck in a costly, revolving balance cycle? Here’s an example: “If you have a $600 cash advance balance and you have a minimum payment due on a purchase balance, if you send in $600 plus the minimum amount due, it should work out that the $600 is paid directly to the cash advance because that’s probably the highest interest rate balance you have,” Sherry explained. Cash advance survey 2017

Paper convenience cheques prevail
While plastic payments have taken over the U.S. payment ecosystem, consumers may still receive paper cash advance convenience cheques in the mail that, when cashed, are treated the same as ATM cash advances. Cash advances from credit cards are convenient, costly and even sneaky, according to a new CreditCards Cash advances from credit cards are convenient, costly and even sneaky, according to a new CreditCards

CreditCards.com found 69 per cent of the cards surveyed make convenience cheques available to cardholders in some way. The availability of convenience cheques may depend on an individual’s creditworthiness, account history, current bank promotions, or may only be sent out upon request. Cash advance survey 2017

The reason for their continued use lies in that there are a lot of things that are still difficult to pay with a credit card, as Feddis and Sherry both explained.

“For example, if you are having work done in your home, and they don’t take cards, they might take a cheque,” Feddis said. “And there are also still a lot of small businesses that only take cash and cheques. ” Cash advance survey 2017

Cash advances not limited to ATM withdrawals and convenience cheques.
If you thought the only time you may face the high cost of a credit card cash advance is when you take out paper bills from an ATM or use a convenience cheque, you might be surprised. Cash advance survey 2017

The CreditCards.com survey found credit card cash advance transactions can include wire transfers, traveler’s checks and money orders, legal gambling purchases and bail bond purchases. Additionally, if you hold a checking account with the same bank that issues your credit card and opt-in for overdraft protection, overdraft coverage pulled from your credit card may also be considered a cash advance transaction. Cash advance survey 2017

“I think a lot of people find out about this the hard way,” Sherry said. “Like, they are in Las Vegas, buy some casino chips and boom, they just took out a cash advance.”

Additional rules and restrictions apply
In addition to being assessed immediate (and high) interest rates and fees, cash advance transactions aren’t as flexible.

For example, if you were hoping that taking out a large cash advance would be a fast and easy way to rack up card rewards, you’re out of luck. Cash advance transactions typically don’t count as reward-earning transactions, as 15 reward cards in the survey specifically noted. Cash advance survey 2017

And, if you read your monthly card statement closely, “It will disclose the amount you can withdraw in cash,” Sherry said. “And that amount is typically less than your total credit limit. Cash advances are almost always only allowed to take up a portion of your credit limit.”