Most people nowadays live paycheck to paycheck, and when unexpected bills come up, there’s often no safety net to fall back on. Your heater has stopped working. Your vehicle needs repairs. Unexpected doctor appointments result in a mountain of medical costs you can’t afford to pay.
A Credit card cash advance is a convenient way to get cash quickly in emergencies like these, especially if you don’t have an emergency reserve. A credit card issuer gives you money in the form of a cash advance. They aren’t perfect in most situations because they generally come with high fees and APR rates.
Here are four reasons why you should avoid credit card cash advances. (See also: Best Cash Advance Credit Cards In Canada).

1. High APR

You don’t have to be concerned about just the cash advance fee. The APR on most cards varies depending on whether you’re making a purchase or taking out a cash advance. For example, MBNA True Line Gold, one of Canada’s most popular credit cards, has an interest rate of 8.99% on purchases. In comparison, its cash advance APR is 24.99%. That’s a difference of more than 16%. This percentage point difference can accumulate, especially if you need to repay your cash advance over a long period. Furthermore, if you often skip payments or have a poor credit rating, the interest rate you pay on your cash advance may increase.

2. Credit Card Cash advances do not have grace periods

You can avoid credit card interest rates if you pay off your balance in full by the due date on your monthly statement. Moreover, the APR for credit card transactions usually begins after the statement due date. This is not the cash with cash advances. Interest on cash advances starts accruing.

3. Additional fees may apply

Cash advances made with credit cards may also require upfront fees. These fees are either fixed or set as a percentage of your withdrawal amount. For example, if a card issuer charges 1.5% of the amount taken, and you withdraw $400, you’ll spend $6 just to get the cash. Also, if you obtain a cash advance abroad or use an ATM that is not affiliated with your card issuer, you may have to pay another withdrawal fee. Therefore, it’s important to always read the card issuer’s terms before taking out a cash advance.

4. No rewards on credit card cash advances

Some credit cards like Scotia Infinite offers 10% cash back on purchases for the first three months. After that, you can continue to earn up to 4% per dollar spent on qualified purchases like dining or gas. However, taking out a cash advance offers no rewards.

In fact, a cash advance doesn’t count as an eligible purchase on most credit cards. And this means you won’t be able to use the reward to offset even a small percentage of the interest while repaying your cash advance.

In conclusion

Cash advances aren’t the best way to borrow money, especially if you want to avoid paying extra credit card fees. However, if you’re in a pinch and need cash right away, a cash advance can be the best option.
If peradventure you’re going to take a credit card cash advance, it’s advisable to choose a low interest card with a low cash advance rate rather than the regular rewards credit card. While most rewards cards charge up to 24.99 per cent for cash advances, some of Canada’s low interest cards have significantly lower rates.