Monday, September 06, 2010

How a Cash Advance Credit System Works

Financial emergencies are inevitable. Even though credit and debit cards have replaced cash in most situations, there are still some vendors and services that require payment with cash. Credit card holders that find themselves in this situation have the option of a cash advance credit, which is the ability to borrow actual currency against their current credit card balance. The cash advance amount available to most credit card holders is a small percentage of the overall credit limit.

Cash advance payments are accessible to card holders at many electronic bank machines, as long as the amount requested does not exceed the actual cash advance limit, or over the counter at a bank or other financial institutions. When using an ATM, if the amount requested does exceed the actual cash advance limit, the machine may still dispense the cash but the exchange will also be electronically flagged. According to card scheme rules, if a credit card holder requesting a cash advance over the counter at a bank presents valid identification, he or she must be given the money even if he or she cannot give his or her PIN (personal identification number)

The amounts of the cash advance, plus the interest and finance charges, are added to the credit card balance. The interest charged on a cash advance is often higher than that charged for store purchases. There is often no interest-free period as there normally is for card holders who pay their balance in full every month. Interest on some unsecured credit cards can be as high as 23% which almost eats up any benefits of the cash advance. That is why it is best to use a cash advance only when absolutely necessary, to request only the amount needed to resolve the financial emergency, and to pay back the cash advance as quickly as possible.

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