Understanding Cash Advances: What You Need to Know Before Using This Credit Card Feature

Credit cards have a lot of features that come in handy when you find yourself in a financial bind. Cash advances, for instance, allow you to quickly access funds when you need cash immediately and don’t have other resources available. This can be beneficial in situations that require urgent cash, such as paying rent or utilities. However, you need to approach cash advances with caution. If not managed carefully, they can lead you into a cycle of debt.

Being more knowledgeable about this short-term loan product can help you understand what can happen when you take out a cash advance and how it can affect your financial health. Here are some things you need to keep in mind to ensure that you can utilize your cash advance wisely.

Cash Advances Typically Come with High Interest Rates

While the general interest rate of most credit cards in the Philippines is around 3%, the interest rates of cash advances may exceed this range, depending on the issuer and the specific terms of the card. This means that if you take out a cash advance, the amount you owe can increase rapidly due to the accrued interest. Additionally, unlike standard purchases, where you might have a grace period to pay off your balance without incurring interest, cash advances begin accruing interest immediately. This immediate accumulation can lead to significant financial strain, especially if you're unable to repay the advance quickly.

You May Incur Additional Fees When Withdrawing at an ATM

When you decide to take out a credit card cash advance at a Visa-supported ATM, be aware that you might encounter additional fees beyond the cash advance fee charged by your issuer. Some will charge you a certain amount, typically around PHP 200, per transaction. Thus, making multiple cash advance withdrawals in a day will result in compounded fees that can quickly add up. Moreover, most ATM operators often impose their own withdrawal fees, particularly if you’re using an ATM that’s not part of your bank's network. This can mean incurring a transaction fee each time you withdraw cash, which adds another layer of cost to the cash advance process.

To mitigate these additional fees, it’s advisable to withdraw larger amounts when necessary. This way, you won’t have to make frequent trips to the ATM, reducing your risk of incurring multiple transaction fees and interest charges. You should also withdraw at ATMs that belong to your bank’s network whenever possible because they typically won’t charge you an ATM fee.

The Total Amount You Can Withdraw Is Generally Lower Than Your Total Credit Limit

Most credit card issuers in the Philippines impose a specific cash advance limit, which is often a percentage of your overall credit limit. For instance, if your card has a credit limit of PHP 50,000 and your cash advance limit is 30%you’re only able to withdraw around PHP 15,000. This restriction can be limiting if you find yourself in urgent need of cash and were relying on your credit card for a larger withdrawal. Thus, it’s essential to be aware of your cash advance limit to avoid unexpected disappointments when trying to access funds.

Understanding the limits on cash advances can also help you navigate financial emergencies more effectively and reduce the likelihood of accumulating additional debt. If you don’t know what your cash advance limit is, you can usually find it on your monthly statement. If you’re a Landers Cashback Everywhere Credit Card holder, your billing statement is available on your Maya app and is sent to your registered email address monthly.

Here's how to view your billing statement on the app:

  1. Log in to Maya and go to Cards
  2. Select your credit card
  3. On the bottom right of your screen, tap the History icon
  4. Go to Statements
  5. Select a billing period to view your statement

Using Cash Advances Regularly Could Negatively Impact Your Credit Standing

Relying on cash advances frequently can have detrimental effects on your credit standing. When you take out a cash advance, you’re essentially borrowing against your credit limit, which can increase your overall credit utilization and, in turn, lower your credit score if it rises above recommended levels. Using cash advances regularly may also signal to lenders that you’re in financial distress. This perception can lead to a decrease in your creditworthiness, making it more challenging to secure future loans or credit lines.

Moreover, cash advances can complicate your overall debt management strategy. As interest accrues immediately and often at a higher rate than standard purchases, carrying a balance from cash advances can make it difficult to pay down your other debts effectively. This situation can lead to a cycle of debt, which will further further impact your credit score and financial health.

To maintain a positive credit standing, it’s crucial to limit the use of cash advances. One way to do this is to set a spending limit on your credit card. Doing so helps you create a budget that encourages responsible financial behavior and minimizes the temptation to rely on cash advances. The process of setting this limit will depend on your credit card. For the Landers Cashback Everywhere Credit Card, it can be done via the Maya app. To access and manage your spending limits, follow these steps:

  1. Log in to Maya and go to Cards
  2. Select your credit card
  3. Tap the gauge icon to open the Limits and controls screen

From there, you can assign a daily spending limit to your cash advances. You can also assign limits to different types of credit card transactions on the Maya app, including your daily spending limit, foreign transactions, online payments, and contactless payments. Setting a limit for each can help you manage your finances more effectively and voice overspending.

While cash advances can provide quick access to funds in emergencies, they come with a host of costs and risks that can negatively impact your financial health. By understanding their implications fully, you’ll know how to use cash advances responsibly, safeguarding your credit health and enhancing your overall financial well-being.

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