A cash advance and a balance transfer both allow credit card customers to access their credit lines for cold hard cash. Although they seem very much the same, it is imperative for cardholders to know the differences in order to save money on interest charges.
Cash advances are similar to making ATM withdrawals, except with your credit card. To get a cash advance, you simply insert your credit card into any ATM and withdraw the desired amount of cash. The amount withdrawn will be added to your credit card balance plus any cash advance fees stated in your card’s terms and disclosures.
Common advice from personal finance experts warns against the use of cash advances because it is very costly and resembles the dreaded payday loan.
A balance transfer is intended for moving the balance from one credit card to another, or paying a credit card with another credit card. You have to request a balance transfer where the credit card company can send you a check, or pay another credit card directly for the amount requested. There is also a fee imposed for a balance transfer.
If you requested a balance transfer check, the check is no different from any other check. You can cash it and do whatever you want with the money. Some people choose to use the balance transfer for other purposes such as shopping or investing. Remember that the source of funds comes from your credit card, which is subject to interest charges.
The three major differences between cash advances and balance transfers are usage, interest rates, and transaction fees.
A cash advance is typically used in desperate situations where cash is needed immediately. A balance transfer must be requested, consumers should have an idea beforehand of how they plan to use the money.
Cash advances generally have higher APRs and transaction fees than balance transfers. For many credit cards, a balance transfer APR is the same as an APR for purchases. If you are looking to obtain some cash from your credit line, the cheaper option would be a balance transfer request.
For example, a popular balance transfer credit card is the Citi Platinum Select MasterCard®. It offers a 0% introductory APR for 18 months on balance transfers and an APR of 11.99% to 20.99% afterwards. The cash advance APR is a variable 25.24% from the day you open your account. Also, the balance transfer fee is the greater of $5 or 4% of the balance transfer amount while the cash advance fee is the greater of $10 or 5% of the cash advance amount.
Check out other popular balance transfer credit cards available.