A cash finance charge is an extra fee brought on by a credit card cash advance, providing the cardholder with instant funds. This fee represents the cost of borrowing cash from a credit card company. According to credit card issuers, finance charges help cover the cost of processing cash transactions, which are more expensive to complete than regular credit card transactions. Since credit card holders who frequently request cash advances are more likely to be delinquent on payments, finance charges also help to cover this risk. Generally, any time a credit card holder uses their card as a debit card, they are issued a finance charge.
Finance charges vary according to the financial institution used to extract the cash, but are generally quite costly. These additional fees are incurred through ATM withdrawals with a credit card, use of credit card checks, or a transfer of funds from a credit card to another financial account. Finance charges are calculated using either an upfront fee, which totals (1% to 4%) of the total transaction or with a flat fee on cash advances that are always the same regardless of amount withdrawn. Increasingly, credit card companies combine both fee calculations to profit from cash advances, creating even higher finance charges. Interest rates on cash finance charges are usually higher than normal credit card purchase fee rates. Finance charge rates normally range from 20 to 25% versus an average interest rate of 15.8% to 17% on regular credit card purchase fees.
Credit card cash advances occur instantly, and finance charges begin accumulating immediately after the cash is advanced, eliminating the normal grace period granting credit cardholders a cushion of time before interest rates accrue. Credit card holders are frequently required to pay their account balance before paying down any cash advance fees.
Financial advisors urge credit cardholders to avoid treating their credit cards as they would a debit card if possible. This means not using credit cards to withdraw cash from ATM machines and refraining from using credit card checks or transfers from a credit card to another account.
Experts caution credit cardholders to avoid amassing finance charges if possible, as they usually entail exorbitantly high interest rates and no payment grace period. With such high interest rates, debt will accumulate much more quickly with even a single finance charge. The high fees are added on the already existing fees issued by banks when cash advanced are obtained via ATM machines. Some credit cardholders who regularly use cash advances find themselves giving into the costly habit of ignoring finance charges in exchange for the luxury of having immediate cash on hand.