When you’re in desperate need of money that you don’t have, one option is to withdraw money using your credit card. That’s right. All you need is to have a PIN for your credit card – one should have been issued to you when you first received it. With that PIN, you can go to any ATM in Singapore and get the money you need. Seems simple, right? Know what else is simple? Getting a drink from a stranger at a bar, and then waking up the next morning without a kidney.
Huh? What drink with what stranger? Don’t scare me lah…
When you withdraw money from your credit card account, what you’re really doing is taking out a short-term cash loan against your credit card’s credit limit. This loan is on a revolving basis, which means you’re being charged interest on the outstanding amount from the second you withdrew the money at the ATM.
But I thought that if I pay my credit card bill in full and on time, I won’t be charged any interest!
That only applies to retail transactions – like shopping, or dining or buying stuff online. Credit card cash advances work differently. Since they are cash loans, they can (and should!) be repaid at any time, especially since you might find yourself in more trouble than before you took the credit card cash advance.
Here are 3 reasons why taking a credit card cash advance is a VERY bad idea.
1. The interest rates are exorbitant
If you thought credit card interest rates were high, cash advance interest rates are at least 3% more! Banks like DBS and UOB charge 28% a year for cash advances. OCBC charges 28.92% per year. What’s worse, interest is incurred on a daily basis, which means compounding interest. While compounding interest is your best friend when it comes to investments, it’s your worst enemy when it’s applied to loans.
Here’s an illustration to show you just how bad it is:
Say you need to take a loan of $1,000 urgently so you withdraw a cash advance from your OCBC credit card account. If you took a year to pay it back, you should expect to pay only $289.20, right? Wrong. Because of compound interest, where the interest is added daily to your original loan amount, you would be paying back a total interest of $335.21 after a year.
That’s paying almost $1 in interest for each day. Doesn’t sound so bad, right? That’s because that’s not the end of it.
2. You will also incur a cash advance fee
If you thought banks only earn money by charging you interest, then it’s time to burst your bubble.
Other than charging you interest, banks also earn money by charging you all kinds of fees. The second you take out a credit card cash advance, you’re charged a cash advance fee. For DBS and UOB, this is 6% of the cash advance amount, or $15, whichever is higher.
That means that the second when you take out a cash advance of $1,000, the bank’s already charged you $60. So even if you take out the loan just for ONE day, you’re already poorer by $60.
But if you’re in desperate need of cash, there’s nothing else you can do, right? Just suck it up and deal with the high interest and fees that credit card cash advances bring with them, right? Wrong.
3. There are much better options to get money
Instead of a credit card cash advance – you may consider applying for a personal credit line. For example, DBS offers Cashline, which currently offers a promotional rate of 8.88% for a year instead of the usual 19.8% for a year. OCBC’s is called EasiCredit and offers a rate of 19.98% a year.
While those interest rates are still relatively high, they’re definitely significantly lower than the credit card cash advance rates.
But the best option, is to go with a personal loan, also known as a term loan. A personal loan not only has lower interest rates, but the interest charged is not compounding. What’s more, you get to repay the loan through fixed monthly instalments, making it much easier to control your cash flow.
If the personal loan is only charged at 14% per year, you can expect to save about $200 on a loan of $1,000. That’s a significant amount, and you won’t have to worry about your kidney either.
Need cash urgently? We help you compare the best personal loan interest rates.
Cash advances are convenient, but it's important to understand how they work before requesting one.
What is a cash advance?
A cash advance is when you use your credit card to obtain cash, such as from an ATM or bank branch. But there are others types of transactions that are also considered cash advances, such as using your credit card to: transfer money to friends using apps like PayPal, Venmo or Moneygram, pay a debt (such as a car loan) using a third-party bill pay service, buy casino chips or lottery tickets, or exchange dollars for foreign currency.
Know the cost:
Cash advances usually include transaction fees and a higher APR than credit card purchases. With each cash advance, we charge a front-end fee, or service charge, that posts to your account the day of the transaction. Be sure to review your account terms for details.
Things work a little differently when it comes to how payments are applied to cash advances. Check out your account terms so you'll know what to expect.
Know your cash advance limit and available credit for cash advances:
Look at your most recent credit card statement and find your Cash Advance Limit. Keep in mind, sometimes ATMs have additional limits. You also must have sufficient total credit line available to take a cash advance. For example, if you have used all of your available credit for purchases, you cannot take a cash advance, even if you have not used all of your cash advance line.
To get a cash advance at an ATM with your Personal Identification Number (PIN):
- Follow the cash advance instructions displayed on the ATM
- Make sure you understand any fees that the ATM might charge in addition to those outlined in your account terms before completing the transaction
How to get a cash advance if you don’t have your PIN
You can take a cash advance inside a bank lobby that displays the Visa or MasterCard credit card logo. You’ll just need to provide a government issued photo ID like a driver's license along with your Capital One card.
Forgot your PIN? You can request a new one. It usually takes several days for your PIN to arrive in the mail, but you might be eligible to get one instantly by requesting it online.