Why Credit Card Cash Advance Is A Huge Financial Trap
When you are strapped for cash. Yet are not able to get instant cash right away. For someone with a credit, you can get cash advance. This cash advance will be helpful for you in helping you manage your needs. However, the credit card cash advance comes with hidden outcomes.
Although a cash advance may seem like a good benefit of credit cards, you need to be careful when using it.
This cash advance is just a short-term high-interest loan offered by the bank. Banks will offer you fast cash loans. However, it can turn out to be costly over time when it not managed well.
Banks will let you access a specific amount of funds within the set credit limit. This is made available to you anytime you require it. All you need to do is use a PIN you get when you receive your credit card.
Generally, most cash advances do not have a minimum amount.
Fees Charged On Your Cash Advance
Other than the rates of interest, banks have other additional fees they charge. Although getting fast cash using your credit card is easy. Just remind yourself of the fees being charged on your cash advance.
Many banks charge 6 percent of the advance amount taken or S$15. For instance, given that your cash advance totals S$1,500. This you have taken using a credit card issued by HSBC. Then apart from being charged 28% as interest on the cash advance. You will need to pay S$75 fee as well.
Interest Rates On Cash Advances Are Different From The Credit Card Rates: Repay ASAP
Though it may be true that credit card interests are only charged when you miss paying your balance. That is on its set due date.
With cash advances, this is different. The credit card advance comes with separate rates of interest. This is around 3% more than interest on your credit card. This interest comes into effect once you take out the funds. This is done automatically and the interests are compounding.
The compounding rates are not computed on your principal loan. Instead, they are worked out on your current balance. When you have taken a cash advance of S$1,500 using credit from HSBC, the advance will incur compounding rates of interest of 28% each year.
Therefore, you will not be repaying S$1,920 after one year. You will instead end up repaying an existing balance amounting to S$1,984.48. This is after one year of the credit card cash advance.
The annual compounding interest formula is: A = P (1 + r/n) nt
A: This is the outstanding balance you currently hold. ( the advance including the rates of interest)
P: It is the advance withdrawn from the providers ATM
R: This is the yearly interest rate. This needs to be in decimal form
n: This shows how many times the interest fee is compounded in a year. But because you are charged every day from the moment you got the advance. Then the working number of times is 365 days. But only when you fail to make payment for a whole year.
t: It is the amount of time in years you have not repaid. In this instance, the working time is only 1 year.
Cash Advance of S$1500
Annual interest rate: 28%
1500(1 +0.28 / 365)365(1) = $1,984.48
The total rates of interest in one year are S$984.48. This will bring your existing balance to S$1,984.48.
However, do realize that even with the promo offer. When you wait for the given grace period that no interest is charged, you might actually end up getting disappointed since this may not apply. Thus, it is recommended that you repay the advance right away.
Other Options To Consider
Credit card advance will seem useful (and they actually are). But, it attracts high interests and fees. When you fail to repay them within the shortest time possible. Then it will keep on growing into larger debt.
Also, when you fail to pay on the due date, its interest will likely go higher. This is together with rates on your credit card. Therefore, before you go for the cash advance, you might need to consider other credit options available first.
Use Personal Loans
Licensed moneylenders offer flexible personal loans. Also, this loan type gets easily approved. So it is possible to get the loan within a day. This is provided you submit all the necessary documents and information. On top of their fast loan process. You may utilize the loan money in any manner you want.
At the same time, you will get lower rates as compared to those on advance EIR. The Singapore Monetary Authority mandates authorized moneylenders to have a limit on interests charged. This is set at 4% per month. Once you take out a personal loan for settling your debts, be accountable and repay diligently to help keep your score in good standing.
Ask for a salary advance from your employer
Some employers in Singapore are ready to give a portion of your income in advance. But, generally, most will consider being a negative factor. Employees with debts might get too troubled such that it affects their work.
Also when there is an upcoming promotion. This can and will mar your image. It can even reduce your chances of getting further in your career.
Borrowing from friends and family
Many Singaporeans will not be comfortable borrowing cash from family and friends. Having good financial standing may be a big issue for many. So to them, borrowing money will only show that they cannot manage finances well.
There is another reason why many Singaporeans do not consider this option. It is the belief that personal and financial relationships are better kept apart. Changing any relationship into a business dealing is not ideal.
Since trust is at risk, and when you unluckily fail to repay on time. Then you could, in the end, lose a friend.
If you need financial help immediately, we have a list of reliable and legalized moneylenders who can resolve your worries in a fast, efficient and discreet manner. Don’t lose sleep over what’s need to be done, reach out to us today.