Whether you’re buying a gift card or playing in a fantasy football league, you might not think twice about paying with a credit card. Still, the two transactions could land you an unexpected bill – and they’re not the only ones.
Payments categorized as a cash advance by your credit card provider will incur high fees, as well as a much higher interest rate, and may even impact your credit score. But while most people realize that withdrawing money from a credit card will incur these charges, many are unaware that other purchases can be considered a cash advance, according to a survey by Totally Money.
Transactions as diverse as the purchase of lottery tickets and foreign currency attract people. In fact, even gift cards can fall into this category, as one woman from Alnwick discovered when she was stung by a double-digit charge.
We reveal what counts as a cash advance, how much it can cost you, the impact on your credit score, and how to avoid getting stung by these fees.
Payments that catch people
Few Brits understand how cash advances work, although many purchases can trigger these additional charges, the Totally Money credit report check service has been found.
In his financial awareness survey, he asked 2,000 people how well they understood cash advance fees in various situations.
While this is the type of cash advance people are most familiar with, just under half of them did not realize that withdrawing cash from an ATM with your credit card would result in losses. fresh.
Using a credit card to pay for any type of game purchase is likely to trigger a cash advance fee – and you don’t have to be in a casino to trigger it.
Almost nine in ten people were unaware that there was a cash advance fee when paying the entry fee for a fantasy football team, which is classified as a game, on a credit card.
Six in seven had no idea that a cash advance fee would apply when purchasing a lottery ticket, while more than three-quarters did not realize that a deposit at a gambling website would incur a cash advance fee.
More than six in ten don’t know that buying foreign currency with a credit card can mean a cash advance fee, although you may be able to avoid this with specialized travel cards.
‘Buying a gift card on credit cost me £ 60 in fees’
When Sue Baines-MacNeill used her Co-operative Bank credit card to purchase a £ 900 Tui gift card in her hometown of Alnwick, Northumberland, her next bank statement came as a shock.
As the Co-operative Bank treated the transaction as a cash advance, the charges amounted to around £ 60 in fees and interest.
When we spoke to 30 lenders, most told us they wouldn’t automatically classify a gift card as a cash advance – but several, including Co-operative Bank, warned that some gift card purchases could be classified differently, depending on the retailer.
Unfortunately for Ms. Baines-MacNeil and others like her, it is very difficult to know how these transactions will be classified before purchasing them.
A spokesperson for Tui told us, “ Charges may be applied by a card provider when purchasing a Tui gift card. Our retail staff will notify customers and this information is also displayed at the in-store office.
After Ms. Baines-MacNeill challenged the Co-operative Bank, the Co-operative Bank reimbursed all the fees she had paid.
What counts as a cash advance on a credit card?
Certain transactions are routinely treated as cash advances, including withdrawals, money transfers, gambling transactions, and purchases of foreign currency or cryptocurrency,
For other transactions, credit card companies rely on categories assigned by retailers, which can lead to surprise costs, Baines-MacNeil discovered.
Who said the credit card companies? it all comes down to the merchant category code (MCC) used by the retailer for the transaction. This four-digit number is the code that indicates to a bank the type of transaction in progress.
So, for example, while you might just be at the casino eating a meal, paying with your credit card might be considered a cash advance because the establishment has a gaming MCC.
Frustratingly, it’s not always clear which purchases count as cash advances, so it can be difficult to avoid fees even when you’re trying.
The cost of cash advances on credit cards
Payments classified as a cash advance will incur a higher interest rate – up to 26.9% on average, compared to a standard purchase rate of 22%.
Cash advance transactions are generally excluded from any 0% interest offer. Plus, interest accrues from day one, unlike other purchases, which include a grace period of up to 59 days.
A cash advance fee is also typically charged, either as a percentage of the transaction amount or as a fixed fee. This can usually be 3% or £ 3 per cash transaction, whichever is greater.
This means that for small purchases, the fees can be higher than the item itself, even before any interest is charged. A lottery ticket costing £ 2 could result in a cash advance of £ 3 – 150% more than the ticket price.
How Credit Card Cash Advances Affect Your Credit Score
In addition to costing you more, using a cash advance could potentially hurt your chances of getting credit in the future.
Some credit card companies will report any cash advance to the Experian, Equifax, and TransUnion credit reference agencies.
Lenders who review your credit report might see this behavior as a sign of financial difficulty, which could affect their decision to approve you for a loan.
How to Avoid Cash Advance Scam Fees
Although you should avoid using your credit card to withdraw money, some cards offer better terms than others.
With a 0% money transfer card, you can transfer part of your balance to your bank account without interest for a specified period, plus a one-time processing fee. Although 0% money transfer transactions are rare, some can be associated with 0% balance transfer transactions.
Alternatively, if you need to spend money overseas, you can use a specialized travel credit card. The better ones won’t charge any fees for withdrawing cash abroad, although they still charge interest, often at a higher rate than other types of card transactions.
If you believe that you have unduly incurred additional fees and interest for a transaction with a credit card, ask your provider.