Cash advance or ‘money transfer’ credit cards pay cash straight into your current account at 0% interest for a given amount of time. If you are after a low-cost loan, looking to make a major purchase, or pay off existing debts, these cards are an option worth considering.
What is a cash advance/ money transfer credit card?
Credit cards which offer cash advances, also known as money transfers, allow you to move available credit on your card across to your current account. Many of these cards offer 0% promotional rates on cash advances for several months. You can then use this money to either make a purchase direct from your account, to pay off your overdraft or other debts, or use it to cover any other expenses you might have.
So, for example, if you’re buying a second hand car for £2,000, you can transfer this £2,000 from your credit card into your bank account, and then pay the seller direct from your account. (Bear in mind however that you won’t covered under the Consumer Credit Act or the Consumer Credit Directive when using your debit card as you would when using a credit card).
Why would I use a cash advance credit card rather than a loan?
Most cash advance cards are effectively balance transfer cards which offer a lengthy 0% introductory rate. That means it is much cheaper to make a balance transfer to your current account than to take out a loan as you can avoid paying interest on what you owe for a decent chunk of time.
However, you must be certain you can pay off what you owe during the 0% money transfer period, otherwise you are likely to end up paying a typical representative annual percentage rate (APR) of around 17% or 18%, much higher than many personal loan rates – the best of which are in the region of 5%.
Why not use a 0% purchase card instead?
The advantage of using a money transfer card to switch interest-free cash into your current account is that these cards can offer longer promotional rates than 0% purchase cards, giving you longer to pay off what you owe without having to worry about interest charges. Also, the balance transfer converts straight into cash which you can use for whatever you need.
Are there any drawbacks?
The biggest disadvantage of most balance transfer credit cards is the fact that they charge a balance transfer fee. This is typically around 3% of the amount you transfer, so charges can soon mount up if large sums are involved. But if the card also allows you to transfer cash, the fee on that can be higher, for example, 4%.
It is possible to pay a lower balance transfer fee on cash transfers, but these deals are likely to come with a shorter promotional 0% term. So, provided you are confident you can repay what you owe during the 0% period, this could be a more cost-effective option.
Not many credit cards allow money transfers though and terms and conditions on the ones that do can change. So it’s always a good idea to compare all available deals to make sure you find the best card to suit your needs.