Low Cash Advance Cards

Credit Cards With A Low Cash Advance Rate

As you use your credit card, you may notice that some of your transactions attract one interest rate, while other transactions attract another interest rate. Why is this? For the most part, credit cards charge different rates of interest on purchases and cash advances, with the purchase rate typically lower than the cash advance rate.

So, why are there different rates for different types of transactions? Risk is a big word in the world of credit cards. Ever wondered why the interest rate applied to home loans is usually around 4% p.a., while the interest rate on credit cards can reach 22% p.a. and higher? That’s because credit cards are deemed a much riskier form of credit.

When you apply for a home loan, there's a very involved process for applying. You need to prove your income, your assets, and various other factors. This – and the fact that the loan is secured against your property – makes it lower risk. On the other hand, while credit cards still have an in-depth approval process, card providers are essentially lending out thousands of dollars, with no form of collateral.

For that reason – and because card providers have to cover the costs of offering credit card extras – the interest rates applied to credit cards tend to be higher. Well then, why are cash advance rates typically higher than purchase rates? Again, we go back to the idea of risk. Purchases are deemed lower risk, while cash advances are higher risk.

Just think, if you’re willing to use your credit card to withdraw money, that would usually point to the fact that you have no other option. How does your card provider know you will be able to pay it back? That makes it a high risk transaction. In the same vein, gambling in all forms is risky, especially for addicts who don’t know when to stop.

Of course, that’s not to say you can’t find some cards with a lower cash advance rate, despite the risk. As low cost cards, these options tend to be fairly basic in their offering, which means they are unlikely to offer dazzling features or rewards. But, for cardholders who plan on using their card for cash advance transactions, they can help to keep interest costs down.

How Cash Advances Work

What is considered a cash advance tends to vary according to the card provider, which is why it’s a good idea to check the small print before using your card. With that in mind though, here are some of the transactions most commonly deemed ‘cash advances’:

• Cash withdrawals from an ATM, bank branch or at the checkout
• Foreign currency or traveller's cheques purchases
• Purchases of gift cards, prepaid debit cards and top-ups
• Using a non-BPAY registered billing service to pay bills
• Transactions at physical or online casinos (these can include money spent on food and beverages)
• Other gambling transactions, such as buying lottery tickets or scratch cards
• Utility and government charges
• Funds transferred from your credit card account to any other bank account

How Much Cash Advances Cost

One of the main reasons to avoid cash advances is their cost. Let’s break those costs down.

Interest: Unlike purchases, which may have a number of days before interest is applied, you will be charged interest on your cash advance transaction from the day it’s made. On a low cash advance credit card, that interest cost will obviously be lower, but if your card has a much higher cash advance rate, those interest costs will quickly add up, making it harder to pay off what you owe.

Cash Advance Fees: Even on low cash advance cards, you will usually pay a cash advance fee on every cash advance transaction. This fee may be a flat amount, say $3 or $4, or it could be a percentage of the transaction amount, for example 2% or 3%. As an example, if you used your credit card to withdraw $1,000 with a 3% cash advance fee, you would pay a $30 fee, which would be added to your balance, and in turn, would increase your interest charges.

ATM Fees: Depending on the ATM you use, you may be charged an ATM fee when you withdraw money using your credit card. This will often be the case if you use an ATM outside your provider’s network, or if you use your card to withdraw money overseas.

Overseas Fees & Charges: Using your credit card for cash advance transactions overseas will typically result in even more charges. Using an ATM will usually result in ATM fee, while any transaction made in a foreign currency will likely attract a foreign currency conversion fee. Again, these charges will be added to your balance, leading to even higher interest charges.

Alternatives To Cash Advances

As you can see, even paying a lower rate of interest on a low cash advance card can result in higher costs than you might have expected. So, what are the alternatives to cash advances?

Using your debit card: If you have funds available – and you simply didn’t realise using your card for cash advance transactions resulted in higher costs – using your debit card provides an easy alternative. Using your own money, you avoid paying interest of any kind, and you can avoid most fees as well.

Using a bank transfer: If you need to pay someone but don’t have cash on you, there are plenty of ways to initiate an instant transfer online. Osko payments from one bank account to another are made in real time, while PayPal and other providers offer a similar service (although fees and registration may apply).

Applying for a loan: If you are short on funds, you could consider applying for a short-term loan or personal loan. Before you decide whether this is the right option for you, be sure to compare options and take into account fees and interest costs. Some providers offer same day access to funds if you need money in a hurry.