Credit, Collections & Insolvency News
Using a credit card to withdraw money from an ATM (cash advance) comes with costly charges and higher interest rates. They can also impact one’s ability to borrow in future new research from TotallyMoney has found.
Most big lenders charge interest rates close to 30%, with additional charges of up to 5%, or a minimum of £3 when a customer uses a credit card to withdraw cash. However, with 36 million active credit cards in circulation, both the volume and the value of cash advances has grown in just twelve months†.
A recent YouGov survey commissioned by TotallyMoney found that just 44% of adults were aware that using a credit card to withdraw cash from an ATM could result in added fees, higher interest rates or immediate interest accruing†.
Customers should also be aware that cash advances are usually exempt from any 0% introductory offers, and that while credit cards typically allow up to 56 to days to clear the balance, interest will kick in from the day you take the money out the cash machine, even if you pay your statement in full.
TotallyMoney commissioned MoneyComms to investigate the charges levied, and to calculate the cost of cash advances for various sums, including the average transaction value of £137.
Some banks will charge a minimum £3 fee on cash advances (in addition to interest), meaning multiple smaller transactions can quickly add up. The research found that four of the big banks will charge an average £3.92 in fees and interest, on a £20 transaction.
While cash advances don’t necessarily impact credit scores, they do appear on credit files and can act as a red flag to lenders, meaning people might struggle to borrow in future.
When heading abroad, customers should be extra vigilant as they could find themselves paying even more than when back home. In addition to fees and higher interest rates, they can be subject to non-sterling transaction fees of 2.75%-2.99%, meaning an equivalent £200 currency withdrawal could cost an extra £25.15 (including 56 days interest).
While ‘cash advance’ might suggest these fees only apply to ATM withdrawals, there are in fact a number of other transactions where your bank could apply hefty fees and high interest charges.
Using a credit card to pay off buy now, pay later purchases, utility bills, your mortgage, or requesting cashback and buying foreign currency can all be treated by banks as cash-like. Customers must therefore double check the small print to stay one step ahead of their bank.
Alastair Douglas, CEO of TotallyMoney said “If you need quick cash and are thinking about putting your credit card in the ATM then think again. These transactions come with extra fees, often with a higher APR, and they can make it more difficult to borrow in the future. They can be particularly costly if you’re making multiple, smaller withdrawals, as you could pay £3.46 just to withdraw £10.”
“Some banks will even apply these charges if they think you’re using a credit card for cash-like transactions. These include making repayments on buy now pay later purchases, paying off utility bills and fines, or buying foreign currency. If you weren’t already aware of this, don’t worry. It’s not always made clear, and millions of others don’t realise either. So double check the small print and keep an eye on your statements to make sure you’ve not been caught out. They’re not only expensive, but can also impact your ability to borrow in future.”
“While the regulator has overhauled overdrafts, making them easier for customers to understand and compare — more needs to be done to raise awareness, simplify, and improve transparency for cash advances.Most customers don’t understand how they work, different lenders apply different fee structures, and only one in ten adults realise that using a credit card to pay for a utility bill could incur additional charges and higher interest rates.”
“Cash-like transactions need to be standardised and banks should actively inform customers of their costs. More than two million low income households have used a credit card or borrowed to pay for bills such as energy and council tax, and as the cost of living continues to squeeze, more will borrow in an attempt to keep the wolf from the door.”
