You just used your credit card to buy $200 worth of groceries when, suddenly, you realize you need $50 cash. So you ask the cashier for some “cash back” or a “cash advance” via your credit card. Within minutes you have your money and are out the door. Convenient? Yes. Costly? Definitely.
When you use your credit card to get cash, your financial institution starts charging you interest as soon as that money is in your hand. There is no interest-free grace period, and the interest rate is often higher than it is for regular purchases.
You may also have to pay a fee for the cash advance, which depending on your credit card issuer can be a fixed amount per transaction, a percentage of the amount of the cash back, or both.
Interest and fees also apply to other transactions.You’re also charged interest right away and may have to pay a fee when you use your credit card to:
• Withdraw cash from an automated teller machine (ATM).
• Withdraw cash at a bank branch.
• Buy money orders or travellers cheques.
Some Canadians also use cash back on their credit card as a way of making ends meet from time to time.
“This could indicate people are having trouble managing their money,” says Lucie Tedesco, Commissioner of the Financial Consumer Agency of Canada (FCAC). “If unexpected expenses come up, talk to your financial institution about your options. There may be alternatives to using your credit card that will cost less.”
– News Canada