What Costs More, a Credit Card Late Fee or a Cash Advance?

Posted on 26 June 2009

There has been a debate going on for quite some time whether it’s better to pay your credit card bill late and bear the extra charges, or to take a cash advance loan and pay your bills in time. For months there have been talks at Congress about capping the fees for short term cash advance loans. On the other hand, most states have also put laws into place to cap the fee that is charged for the service of providing a short-term loan. These loans are usually given without many inquiries, credit checks or employment verifications. They would only check a person’s checking account and typically, a person would give a post-dated check to a company to hold, while they provide the cash for the check. The borrower then returns within the next two weeks to pay the loan back with their next paycheck and the lender gives the post-dated check back. There are fees for this convenient service, but these fees are often exaggerated quite a bit to reflect a negative point about these loans.

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This convenience fee is mostly around 15%, or $15 for every $100 borrowed whereas a credit card late fee is not as regulated and can be around $20 to $50 per billing statement. Moreover, the credit card companies can charge this fee many times in the form of late fees or overdraft. In this way, you will have to pay a lot more than required initially and as compared to a cash advance it will be more expensive.

Lets take an example. Suppose you have a credit card bill due, where they require a minimum payment of $100 and the bill is paid late because you didn’t have the money by the due date. You will now have to pay an additional $50 meaning a total of $150. In addition to this, a bad credit mark could against your credit history and thus can affect your credit score as well.

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On the other hand, if you decide to take a cash advance for $100 in order to pay for your credit cad bill, you will have to pay only $115 back to the cash advance company instead of paying $150 as late fee to the credit card company. This means that you can save up to $35 just by taking a cash advance in time. Despite these numbers, critics still claim that cash advance loans are wrong and deceptive and charge high prices. However, if I had a choice to either pay my credit card bill late, or take a cash loan advance in order to pay my bill on time, I would definitely go for it as numbers don’t lie and no matter what they say, a cash advance is a good alternative to paying the late fees on credit cards.

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