Credit cards Updated:
Many of us do not realise the costs involved when withdrawing cash on our credit cards. The interest rate charged on cash advances is usually not the same as that charged for credit card purchases. This can really catch people out if they have a credit card with a low rate on purchases. They can be led to think that the same low rate will apply when withdrawing cash, yet many credit card providers charge over 20% APR on cash advances.
Not only is the interest rate charged usually high but credit card providers also charge cash withdrawal fees. These are typically around 2% with a minimum fee of £2. Therefore, if you are withdrawing £200 on your credit card you will be charged £4 before even taking into account the interest you will pay.
Another point to consider is the order of repayments on credit cards. Most credit cards make you pay off the most expensive transactions last, so you are charged more interest. This means if you have made purchases and withdrawn cash on your credit card, you will pay off the debt for the purchases first. Also, when you use a credit card you typically get up to 56 days' interest-free credit- this does not apply with cash withdrawals. Once again, this means you are paying dearly on interest.
Another thing to watch out for when using a credit card is the special cheques that many providers will send you in the post. These were originally aimed at people wanting to transfer balances from one card to another. Increasingly, however, providers are marketing these as a good way to pay for special large purchases such as holidays and even for paying your household bills.
Beware of Credit Card Cheques
People tempted to use these cheques should beware. They are typically treated like a cash advance on your credit card. This means once again that interest can begin to mount up from day one. You will also be charged the higher interest rate when using credit card cheques. Not only this, there is often a handling fee of about 2%, with a minimum of £2.
When withdrawing cash on your card you should be aware of how much it is going to cost you and check to see if alternative means of obtaining cash or credit are more economical. You should also be aware that when using your credit card abroad you might be charged a foreign usage loading fee. Foreign usage loading on credit cards averages 2.75%. This means if you spent £1,000 on your credit card whilst on holiday, you would be charged £27.50 as well as the normal charges incurred when withdrawing cash on your credit card. Some credit card providers do not make this charge.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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