Campus Cash Advances: A Great Roommate or a Hated Foe?
Your roommates are ordering pizza while they study for finals. Do you have some cash to chip in? You know pizza sounds great, but you don’t have any money on you. Luckily, there’s an ATM on the first floor. You grab your credit card and head down to take out some cash. Or do you?
Cash advances from your student credit card are easily one of the most tempting features offered. They’re great for late night pizza or anything else you need, but are they really a good idea in the long run? Most credit experts will tell you that they’re only a good idea if you know what you’re getting yourself into.
When you take a cash advance from your credit card, special fees and rates apply that don’t necessarily apply during the course of a normal purchase. First, think about this. While you may have just gotten your student credit card, and you may have been enticed by the grace period, there is no grace period when it comes to cash advances. You’ll pay interest on that money the second it leaves the ATM.
Second, the fee you’ll pay for that pizza money will vary from credit card company to credit card company, but in almost all cases, it’s going to cost you quite a bit. The industry actually has two standards here. First, some cards have a fee that ranges from one to four percent. The other method is to charge one standard fee for an advance of any amount. That means that whether you get ten bucks or a thousand, you may be paying as much as five percent on that money. One sad industry trend, though is to use both methods. Many card companies have decided that they’ll charge you a certain percentage based on the amount of the advance, but they’ll also charge you a minimum service fee just for getting the advance itself. The best way to know exactly how much that pizza is going to cost is to read the fine print of your credit card agreement.
Third, you have to factor in the interest rate that you’ll pay over time on that cash advance. Most student credit cards have an interest rate that is much higher for cash advances than it is for normal purchases. While your APR may just be 15%, the APR for your cash advance might be as high as 30%. Moreover, because of the way some student credit card companies handle payments, the minimum payment you’ve just made to your account won’t be applied to the cash advance until the other purchases are paid off. That means you’ll continue to pay the higher interest rate on the pizza money.
If you think you’ll need regular cash advances from your student credit card, look for a card that was designed for that. You’ll want low rates and fees surrounding your cash advances, or that pizza may cost more than your entire education.
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