Consumers spending £17m on expensive card charges each month

New TotallyMoney research has shown that each month, consumers are using credit cards to withdraw £240m in cash, resulting in £16.9 million in interest card charges and fees.

The analysis found that the average cash advance of £139 could cost an extra £10 in interest and fees.

It was also found that the total value of transactions of which are card cash advances has rocketed by 38% in past 12 months.

Just 46% of respondents to a YouGov survey, commissioned by TotallyMoney were aware that withdrawing cash with a credit card could trigger extra fees and a higher interest rate.

Cash advance fees work just like with a debit card, you can take cash out of the ATM with a credit card. However, when you do it’s likely you’ll be charged a ‘cash advance fee’ and a higher rate of interest, immediately.

This fee is charged as a percentage of the amount withdrawn, or a flat fee. This will typically be around 3% or £3, whichever is higher.

Credit cards provide an average 58 days to clear the balance before you’re charged interest. But with cash advances, interest will kick in from the day you make the transaction, and it’s likely to be at a higher rate than the standard purchase rate on your credit card.

Cash advances will usually be excluded from any 0% interest offers, leaving customers with even more to pay.

TotallyMoney calculated that for the average cash advance transaction of £139, a customer would pay an additional £10 in interest and fees.

Withdrawing cash on a credit card may also have a negative impact on one’s ability to borrow in the future as they can make somebody look cash hungry, acting as a red flag to lenders.

Cash advances don’t only apply to using a credit card for ATM withdrawals. There are several other types of credit card transactions that can be classified as ‘cash’, including paying off Buy Now Pay Later debts, utility bills, mortgage statements, and buying foreign currency.

With the new energy price cap, and an increase in energy consumption as we enter the winter months, some may be turning to credit to cover payments. However, research by TotallyMoney found that only 7% of consumers realised that paying a utility bill could count as a cash advance.

Alastair Douglas of TotallyMoney said “Consumers should think twice before using a credit card to withdraw cash. Doing so can lead to extra fees and a higher interest rate, meaning you’ll repay more than you borrowed.”

“Cash advances will not only cost more, but could impact your ability to access credit in the future. This is because they can act as a red flag to lenders, signalling bad financial management. Those with cash advances on their credit files may be looked at in a negative light by lenders, and so are rejected. This could mean more cash advances are needed to cover costs, so a vicious circle is created.