Why You Should be Wary of Cash Advances – What to KnowNov 07, 2019
We all encounter financial problems at some point in our lives. Unexpected things happen, and we incur unforeseen expenses. Whether it is a medical emergency, a tuition due date, or a dip in your business’s finances, you need to be prepared for such predicaments. The truth, however, is that we don’t always have the money on hand to deal with urgent needs. When this occurs, many South Africans turn to banks for personal loans. Others simply put it on their credit cards and figure that they’ll deal with it later.
While these ideas may sound tempting, keep in mind that a cash advance is not the same as withdrawing it from your bank. In truth, credit card cash advances are just like loans. But because it makes borrowing money more accessible, usually the payment scheme is also more expensive. Before you know it, you will be faced with a staggering credit card debt.
How a Cash Advance Works
Cash advances are often appealing to South Africans because they’re incredibly simple. You can take out a cash advance with your credit card simply by going to an ATM, just as you would if you had to withdraw money. However, cash advances aren’t priced like withdrawals. In fact, they are one of the most expensive types of credit card transactions.
Cash advances come with a cash advance fee that’s either a flat rate or a percentage of the amount of the loan. For instance, a credit card company may state that the cash advance fee is “R5 or 5 per cent, whichever is higher.” If you are borrowing R100, the fee would be R5.00 either way. However, if you need more than that—let’s say R200—the fee would be R10.00, or 5% of the advance amount. In addition to this, there will also be an ATM fee, depending on which bank’s ATM you use.
It is worth knowing that cash advances have a higher interest rate than when you use your credit card for actual purchases. For instance, you would pay more interest on a R500 cash advance than on a R500 airfare. The longer you pay it off, the more interest you’ll accrue.
One more thing to note is that most credit cards don’t offer a grace period for you to pay back the cash advance. Interest starts rolling from the time of your transaction. If you are not aware and don’t pay on your next due date, you will incur an additional finance charge.
Other Legitimate Ways to Get Money Fast
Aside from credit card cash advances, you might want to consider different types of loan options. The ideal situation is when a close friend or family member can lend a helping hand. Long-term loans allow you to get a more substantial amount, but they usually require more documents and collateral. Application and approval can also take a while.
Taking out a payday loan in South Africa is, like a cash advance, easy and convenient. The application can be made online within a few minutes. Generally, all you need is proof of income and some references aside from IDs. These are “no credit check” types of loans, which means even if you don’t have a good standing credit record, you may still be able to qualify.
Whatever loan option you choose, the bottom line is that the money you will be getting is not yours. It should be the last option and should not be considered as a long-term solution. When using your credit card to get a cash advance, be sure you can repay the amount as soon as possible.
If you’re in South Africa and would like to take out a payday loan, feel free to contact Hoopla Loans today to see what we can do for you!