Have you ever taken out a cash advance or did someone tell you it’s not a good idea? This blog will educate you about cash advances and what to expect.
Understand what a cash advance is
Typically, a cash advance is an another name of using your credit card to get cash. Cash advances can also be payday loans which means that you will have to pay the money back or a refund anticipation loan. A refund anticipation loan is money in which tax preparer via the (Internal Revenue Service) provides to you.
To make it easy, think of these loans as over drafting your bank account. It’s money that you receive but have to pay your back to your bank.
Know they’re expensive
Cash advances are expensive. That is one of the biggest drawbacks. You’re borrowing money, and in return, paying a hefty amount of money back to do so.
The three main reasons cash advances are considered expensive loans are as follows:
If you are taking out a cash advance with your credit card, a borrow should expect to pay either 5% of the borrowed money or $10, whatever’s greater.
According to LowCards, the average annual percentage rate of credit card cash advance is 22.11%. This is important because you need to realize that it’s more expensive to borrow cash from your credit card than it is to just use it to pay for goods and services.
According to the CFPB, the average APR for a payday loan is almost 400%. That, of course, indicates a bad deal.
Short grace periods
Payday loan payback period is shorter than most credit card loans. For instance, you are being charged $15 for $100 loan which doesn’t sound bad, but you will get less time (generally 2 weeks) to pay your money back than you would with a credit card (a month).
Look at the fine print
According to Alexander Stern, a consumer attorney at Stern Legal Services, in Berkeley, California says “It’s extremely important to go over the terms and conditions of any short-term loan with a fine-tooth comb. Advertisements highlight the best parts of a product and rarely discuss the worst aspects. Salespeople are similarly focused on the sale rather than what is necessarily best for a given consumer. That’s why it is important that you be proactive in reading any contracts carefully before signing.”
When reviewing the fine print. You may find legal jargon that you won’t like. It would best to take the paperwork home and give yourself sufficient time to read the contract thoroughly and think about your limits before you act.
Be aware of financial traps
If your finances are shaky and you have no choice except to take out a cash advance, be aware. Don’t allow yourself to be trapped by the financial institutions which make you feel like they want to help you. In closing, be diligent in your research and ask questions if you are not sure what you are signing.
Should you have any questions about your cash advances, to contact us at www.unitedcounselors.org.