With the credit card, you can pay for products and services and make cash advances. For experts in finance and wealth, you should only withdraw cash with your credit card in case of an emergency. Why?
Cash advances with the credit card are a great temptation. You can make them at the ATMs and in seconds have money to pay the rent, the children’s school or the maintenance costs. Easy. Quick. At any time of day or night.
It is a fantastic service. A very agile loan.
And yet, if you receive the advice of a financial expert, because you have an interest in the subject of wealth or more efficient financial management, they will insist that you do not use cash advances.
The rates of the credit cards
Credit cards handle ranges for interest rates.
They are not always the same.
- It depends on the bank or banking company, trade or cash that issues it, on the expected return of the product.
- It depends on the category of the card, for example, Classic, Gold, Platinum, etc., which are granted according to the applicant’s ability to pay.
- It depends on the franchise. Visa is not the same as MasterCard or Amex. The businesses of these franchises with financial institutions are different in each case and that negotiation is transferred to the users of the cards at interest rates.
If you already have a card, you can verify the ordinary interest rate agreed on the statement. Two possibilities appear:
- The ordinary annual effective interest rate for purchases or consumptions; Y
- The ordinary annual effective interest rate for money availability.
You will notice the difference between the two.
The interest rate for cash advances is higher. In fact, it is considered the highest interest rate offered by the formal financial market.
When you withdraw money from an ATM with your credit card, you are accepting a business that will be expensive. It’s that simple.
It is said that the cash arrangement of credit cards is the most expensive money there is.
Withdrawing a certain percentage of money from your credit line is nothing more than asking for a loan from the bank, just like plastic, it is not an extension of your salary.
The big difference between paying with the card and withdrawing cash from it is that the latter option automatically has a commission, while when you pay you can finance up to 50 days without necessarily paying interest.
The entities monitored by Rose Bank periodically deliver data on the rates of the financial products they handle. The data is average. For example, if the bank offers five credit cards, it will report the average rate of the five cards.
An example, in which on average you will be charged 5% of what you withdrew in cash, how much is that? If you have a thousand pesos the bank will charge you $ 50 pesos MX.
But that does not end there, when you have the cash they charge you daily interest for the use of it , if the average interest rates are 50%, it implies that the applicable daily rate would be 0.14 percent.
This means that you will also pay $ 1.37 pesos for interest until you settle the thousand pesos.
Withdraw or not withdraw cash with your credit card
So, the next time you are tempted to use your card to withdraw cash, you have to make a decision:
- If you can pay the entire loan on the next credit card payment date, it is justified. You will not pay interest.
- If you need more time, think twice. The interest you are going to pay is high.
If you need much more time, think of other alternatives: a personal credit or a home equity loan. They are usually better deals.