A cash advance is an option cardholders can use to borrow cash against their current balances, as opposed to using the card for a tangible purchase. For most credit card users, the amount of cash available for a cash advance is a small percentage of their overall credit limit. Statements issued by the bank will generally provide two sets of numbers: the credit limit and the cash advance limit.
Cash Advances
Your credit card is a powerful tool for the management of your financial life. It can help you to extend the value of the products and services you need by receiving the goods, before paying for it. Your credit card can also reduce the need for cash or check in places far from home, and it can also allow you to conduct personal and professional business by phone, mail, or the Internet.
Like all-powerful tools, though, your credit card needs to be used carefully. This is especially important when using the ultimate power of your credit card: it's ability to give you immediate cash in large amounts. The two most popular ways of obtaining cash from credit cards are through the ATM machine at your local bank, or by filling out and cashing a check-like document that is often attached to your monthly credit card statement. You can also go inside the bank and fill out forms to receive the money. All of these methods will get you the cash you need however, if you must get an advance, avoid using ATM machines. ATMs charge an additional fee for
advances. This fee is charged by the financial institution that owns the ATM. Each method besides have another huge thing in common which is that no matter what way you take the money, you will instantly be charged interest on the transaction. Cash advances begin accruing interest immediately and, therefore, are not subject to a grace period. Thus, even if you pay your card balance in full when your bill arrives, you will still be accessed a finance charge for any advances.
Last year the amount of cash borrowed from just one major credit card company totaled more than 104 billion dollars. That was an eight percent increase over the previous year, and it tells us that credit card users are increasingly seeing the easy use of plastic as a substitute for the discipline of using banks and credit unions for borrowing.
Credit card companies in turn are increasingly willing to loan cash. It can be a very valuable service for their customers. But credit card companies are also increasing the fees and interest charges for cash advance. Your monthly statement gives you some of the fine print on how those charges are billed, but in most cases it doesn't tell you what those charges are. If you don't know it's always a good idea to call the customer service number on your statement and ask. It's no different than shopping for the best terms on a loan among banks and credit unions before signing on the dotted line.
The Cost of Buying Cash
When you use your credit card to buy new shoes or the latest CDs those products are yours to keep. You can use them for years to come and pay for them over a few months if you wish. But when you use your credit card for cash advance to pay for daily necessities like groceries and gasoline you will pay much more for that privilege. And you will have to give it all back as quickly as you can.
If you borrow $500 from one of the major credit card companies in the United States at contemporary rates, for example, you will be charged 3. If you determine to pay off the loan in four months your costs in fees and interest for the purchase of $500 will be $35.88 or more than 7 of the loan amount.
But that's not all. If you read the small print on your statement you will learn that in most cases payments you make to your credit card company will be applied first to lower interest charge purchases before they begin to erase your debt for higher interest borrowing of cash. For example: If your credit card balance of $1000 includes a $500 cash advance and you pay back only $200 per month it will be three months before your payments begin to cover the advance. That's three more months that the credit card company can charge you 19.9 APR charge for goods and services charge nearly 20 to 4 for an advance, but charges a minimum of $10 regardless of the amount of the advance. Another example would be an issuer that charges x at times, which can quickly swallow up any benefits of a cash advance. Use your credit advance wisely and only borrow enough cash to resolve your financial obligation and make a sincere effort to pay back any cash advance quickly.
Credit Card For Cash
By devoting extra caution and time, commercial borrowers can avoid serious working capital loan mistakes. The most obvious benefit will be to reduce the potential for critical credit card processing and business cash advance problems, both now and throughout the life of the business finance terms arranged.
In our experience, the potential difficulties involving factors discussed below are more serious and common than most business owners expect. While we will not be addressing all possible merchant cash advance and working capital loan mistakes in this article, we will include several of the most severe issues to anticipate.
Misrepresentations and Unwillingness to Explain Working Capital Details -
In my experience, most business cash advance and working capital loan agents are more interested in earning revenues from credit card processing than anything else. This results in rampant misrepresentations about what they can do for a business owner in their attempt to secure business finance help through credit card financing. In such a situation, the time and costs for the business owner are typically misrepresented so that the processing changeover proceeds rapidly.
It should come as no surprise that such advisors are often motivated by their own financial interests more than those of business owners they are representing. In such cases, they are unlikely to provide either detailed information or prudent advice for a commercial borrower. A recommended procedure for avoiding such a potential trap is by using an experienced advisor who is involved with all business financing aspects rather than just business cash advance and credit card processing services.
Working with a business finance expert who routinely avoids such inappropriate conflicts of interest should be the preferred approach whenever possible. An advisor is much more likely to provide an unbiased business cash advance recommendation if they will not profit from the credit card processing.
Ignoring Common Credit Card Factoring and Business Financing Problems -
Although business cash advance and credit card processing programs are needed by many businesses, commercial borrowers should not overlook the numerous problems that can regularly occur with these services. We have prepared several reports that describe in detail key problems for many merchant cash advance services.
It is simply not necessary to experience any of the typical difficulties, although it is fair to say that many providers will have several of the problems present in their services. The recommended strategy for avoiding this particular mistake is to work with an experienced advisor who is knowledgeable and candid about how to approach these critical business finance problems.
Inexperienced Business Finance and Credit Card Processing Advisors -
Most lenders and brokers which previously provided residential mortgages have been forced to look for alternate sources of revenue. Business cash advance and credit card processing programs have recently become more popular with these brokers and lenders.
The immediate impact is a sudden influx of inexperienced residential mortgage brokers and lenders attempting to provide working capital management advice for credit card processing and business cash advance services. Business financing is much more complicated than residential financing, and we have prepared numerous reports to support this viewpoint. For most business owners, the use of inexperienced business finance advisors will be a mistake of potentially serious proportions. Conversely a prudent strategy for avoiding this mistake is to eliminate advisors and lenders without significant long-term business financing success.
Solutions and Strategies for Avoiding Credit Card Processing and Business Cash Advance Mistakes -
Business owners should look for advisors and resources which will provide relevant strategies and solutions for a business owner to acquire an adequate understanding of complex business cash advance and credit card processing issues. Prior to beginning a working capital loan process, business owners should have a thorough discussion with a business financing expert. These efforts will be worthwhile since the potential business finance mistakes described above can be overcome successfully.
Both Simon Jones & are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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