The inflation coupled with the soaring rents and electricity prices is squeezing the budget of many families in Singapore. Many are giving up the frills while others cut back on basics. And if you don’t have enough funds in your savings, you may need to turn to other options to make ends meet. If your debit card is unable to cough up more cash, you may benefit from a cash advance. For instance, you can withdraw cash or a cash equivalent using your credit card. You can then use the funds to pay off emergency bills and other necessities. But is a cash advance a viable option? Here’s what you need to consider before you take out a cash advance in Singapore.
What Is a Cash Advance?
A cash advance is a short-term loan from a bank or financial institution. Unlike traditional loans, cash advances do not require a credit check and the cash is disbursed immediately. Because of their fast approval and quick funding, it is an attractive short-term solution for borrowers. The term “cash advance” is typically used to refer to the service provided by a credit card issuer. This feature allows cardholders to withdraw a certain amount of cash using their credit card. The catch? Cash advances generally have steep interest and fees. As such, cash advances are intended to be a very short-term solution to your cash flow problems. Lastly, there is a limit to how much you can withdraw. A cash advance may not be enough to cover big-ticket purchases or large expenses.
Types of Cash Advances
1. Credit Card Cash Advance
A credit card cash advance is the process of obtaining cash using your credit card. Basically, you are borrowing money from the credit limit of your credit card. So how much money can you get using this feature? The credit card cash advance limit depends on your credit card issuer and your credit score. The higher your score, the more money you can take out using a cash advance.
Pros
Cons
Fast and easy to get
High cash advance APR
It doesn’t require you to have money in your bank account
Additional fees
No credit check
Can affect your credit score
No approval process
2. Merchant Cash Advance
Merchant cash advances provide quick funding to businesses that require immediate working capital. The funds you’ll receive will be based on your business’ past sales and projections of future sales. Merchant cash advances provide your business with a temporary cash-flow boost. That said, it is suitable for enterprises that receive a lot of debit and credit card payments.
Pros
Cons
Less stringent requirements compared to other traditional loans
Taking out a cash advance may be a viable option for individuals who are in dire need of cash. Additionally, cash advances are also beneficial for those with limited resources and a less-than-stellar credit score. Unfortunately, cash advances come with high fees and interest. In some cases, such as credit card cash advances, you are charged the moment you receive money. One scenario where a cash advance would be helpful is if you’re facing a medical emergency and need immediate cash. But before you do, consider these pros and cons to make smart financial decisions.
Pros
Fast and easy. You can get a credit card cash advance by simply using your credit card at an ATM. Plus, it doesn’t require you to have money in your bank account.
No application process. Unlike other traditional short-term loans, you don’t have to go through a thorough application process to get the money you need.
No credit check. With a credit card cash advance, you don’t need to have a good credit score. Even payday loans provided by licensed money lenders in Singapore don’t require a credit check.
No collateral is required. With a cash advance, you don’t have to put up collateral to secure funding.
No fixed monthly installments. Since it is a short-term loan, you’ll have to repay the loan quickly. That said, you don’t have to worry about monthly repayment over a long period. Additionally, those who take out a merchant cash advance repay lenders by giving a fixed percentage of credit card receipts every month.
Cons
High interest rates. The catch for cash advances is the exorbitant interest rates. For instance, DBS charges 28% APR, charged daily on credit card cash advances. This is higher than the rate of their credit card.
Immediately accrue interest. With a credit card cash advance, you don’t have a grace period. You’ll immediately be charged with interest, daily.
Additional fees. On top of the high interest rates, you’ll also be charged additional fees. Using DBS as an example, they charge 5% or S$15 (whichever is higher) for every cash advance transaction.
Small amount. A cash advance only offers a small amount – you can only borrow a percentage of your set credit card limit. This means you’re limited to smaller expenses and purchases.
May impact your credit score. Just like other forms of financing, failing to repay your cash advance on time will negatively impact your credit score.
Tips To Reduce the Costs
Transaction fees and high interest rates spike the cost of cash advances. Are you still considering cash advances as a last resort to address a financial emergency? Here are ways to help reduce the cost of cash advances:
Look for a credit card that charges low fees: Compare different credit cards and find the one with the lowest transaction fees. In Singapore, major credit card providers offer a 5% or S$15 transaction fee.
Shop for the lowest APR: Most credit cards in Singapore charge an APR of 25%. However, there are credit card providers that charge an APR of 29 to 30% on credit card cash advances. So make sure to use cards with the lowest APR.
Borrow as little as possible: Another way to minimize cash advance costs is to borrow only what you need. The smaller the amount, the less you’ll have to pay in fees and interest.
Pay off your cash advance as soon as you can: Remember that your cash advance will start to accrue interest the same day you get your funds. That said, make it a goal to repay the amount you borrowed in days instead of weeks.
Cost of Banks’ Cash Advances
As previously mentioned, the average credit card cash advance APR is 29 to 30%. However, there are plenty of credit cards in Singapore that charge an APR of around 25%. Take a look at the table below to compare the fees and APR of most major banks.
Bank
Cash Advance Fee
Interest Rate
HSBC
5% or S$15 (whichever is higher)
24% APR, charged daily
Maybank
5% or S$15 (whichever is higher)
24% APR, charged daily
American Express
5%
24% APR, charged daily
ANZ
5% or S$15 (whichever is higher)
28% APR, charged daily
Standard Chartered
6% or S$15 (whichever is higher)
24% APR, charged daily
UOB
6% or S$15 (whichever is higher)
28% APR, charged daily
DBS
6% or S$15 (whichever is higher)
28% APR, charged daily
OCBC
6% or S$15 (whichever is higher)
28.92% APR, charged daily
CIMB
6% or S$15 (whichever is higher)
28% APR, charged daily
Citibank
6% or S$15 (whichever is higher)
29.9% APR, charged daily
Alternatives to Cash Advances
Borrow from family and friends: This may not be ideal for some individuals, especially since it can potentially damage relationships. However, borrowing from friends and family can be a more flexible and less expensive option. Just make sure that you and the other person set clear terms before you borrow the money.
Personal loan: A personal loan is an unsecured loan with interest – typically lower than that of credit cards. Additionally, you can borrow higher loan amounts with a maximum repayment period of 7 years. It involves fixed monthly payments throughout the duration of the loan.
Borrow money from your retirement fund: You can use your Ordinary Account (OA) savings for your housing payments. If you need money to fund your education, you can also use your CPF to the available withdrawal limit under the CPF Education Loan Scheme. However, using your CPF savings means you’ll have fewer savings for your retirement.
Pay your bills using a credit card: Instead of using a cash advance, why not use your credit card to pay your bills? Doing so will help you avoid costly transaction fees. Plus, if you pay the full credit card balance on or before the due date, you won’t incur interest charges.
FAQs
1. Does Getting a Cash Advance Hurt Your Credit?
Withdrawing cash on your credit card will be visible on your credit statement and history. That said, simply taking a cash advance will not affect your credit score. However, failing to repay the amount will negatively impact your credit score. Keep in mind that you will be charged interest as soon as you receive the funds. The more you delay payment, the more your debt will snowball.
2. Why Would Someone Want a Cash Advance?
A cash advance allows you to get access to funds quickly and easily. It doesn’t have an application process and doesn’t require a credit check. Cash advances are a viable option for those in need of a short-term cash flow solution.
Closing
For extreme emergency needs, a cash advance is a quick and easy way to access funds. And since it is an expensive short-term loan, it needs to be paid back in full as soon as possible. As such, consider it as a last resort to get cash. Key takeaways
A cash advance is a type of short-term loan, typically used by credit card companies, and usually involves high fees and interest.
Aside from credit card cash advances, other types of cash advances include merchant cash advances – an alternative to business loans, and payday loans.
Just like other forms of financing, failing to repay your cash advance on time will negatively impact your credit score.
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