How to trick credit card companies

how to trick credit card companies

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Thanks to some sneaky fine print, many consumers have forked over hundreds of dollars for a cash advance from their credit card company without even realizing it.

According to a study released Wednesday by CreditCards.com. 98 of the 100 cards examined charged a cash advance fee — typically 5% of the total amount or $10, whichever was greater — plus hefty interest rates that started immediately (no 30-day grace period, like you get with traditional purchases) after the purchase. These averaged 24% (compared with the average purchase rate of 15%) and climbed to a whopping 36%. “It’s almost like going to a loan shark,” says Charles Tran, founder of credit card comparison site CreditDonkey.com. “It’s rarely a good value proposition.”

For example, let’s say you took a $1,000 cash advance at 24% interest. If you take a year to pay that off, it will cost you more than $1,184 — thanks to a $50 fee (5% of the cash advance amount) plus more than $134 in interest. Even if you paid that $1,000 cash advance back within 30 days, it would still cost you a total $1,069, which includes the $1,000 cash repayment plus a 5% fee ($50) and $19 in interest. Meanwhile, you could have skirted that extra $69 entirely had you just charged the item on your credit card and repaid it within a month, since a typical purchase has a 30-day grace period before you must repay it.

But here’s the really shocking part: Many consumers have unknowingly taken one of these pricey cash advances, explains Matt Schulz, a senior industry analyst with CreditCards.com. The reason: The fine print of your credit card agreement often states that certain kinds of purchases like those related to legal gambling and bail bonds, as well as wire transfers and money orders, are often treated as cash advances when paid for by the credit card, explains Schulz. What’s more, those “convenience checks” that you may have received in the mail from your credit card company are also often treated as cash advances.

While it’s typically best to avoid a cash advance because of how pricey it is, Schulz notes that when you need money ASAP, “cash advances can be the best of a bunch of really bad options.” Indeed, they’re often cheaper than payday loans, quicker to get than personal loans, and sometimes (depending on the amount you pull out) cheaper even than overdrafting your account, thanks to those $25 to $35 overdraft fees.

If you have to take out a cash advance, some credit card companies offer better terms than others. Two of the best are the PenFed Platinum Cash Rewards Visa Card Standard and PenFed Promise Visa cards, which don’t charge a cash advance fee (they’re the only two of the 100 cards surveyed that don’t) and have low cash-advance APRs of between 9.99% and 17.99% and 7.99 and 16.99%, respectively, depending on your credit score.

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Source: www.marketwatch.com

Category: Credit

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