With the credit card you can pay for products and services and make cash advances. For finance and wealth experts, you should only withdraw cash in case of emergency. Why?
Cash advances with the credit card are a great temptation. You can make them at the ATMs and in seconds have money to pay the rent, the children’s school or the maintenance costs. Easy. Quick. At any time of day or night.
It is a fantastic service. A very agile loan.
And yet, if you receive the advice of a financial expert, because you have an interest in the subject of wealth or more efficient financial management, they will insist that you do not use cash advances.
The rates of the credit cards
In Colombia, the average interest rate of banks at the end of March in the consumer portfolio was 19.78% annual cash and the credit card at the same cut was 31.24%. For VIS housing loans, the average rate is 12.97%.
The rate for this type of credit is presented separately depending on whether it is requested to acquire a house or to build it and if the credit is destined for a social interest housing (VIS) or a non-VIS one.
On the other hand, the credits in pesos correspond to those that are established with a fixed rate and that have a fixed fee during the credit time, while the credits in real value units (UVR) have variable fees, following the UVR certified by the Bank of the Republic.
- The TEA is the Annual Effective Rate , that is, the value charged by the bank for lending money for 12 months.
- The TCEA is the Annual Effective Cost Rate . Includes expenses and costs incurred by the bank to carry out the business. It is equal to ASD + insurance + commissions. This figure is the most important when evaluating the cost of a loan.
- When negotiating a loan it is essential to know both values.
Credit cards handle ranges for interest rates
They are not always the same. You will notice the difference between the two. The interest rate for cash advances is higher. In fact, it is considered the highest interest rate offered by the formal financial market.
When you withdraw money from an ATM with your credit card, you are accepting a business that will be expensive. It’s that simple. As you can see in the table, the cheapest credit is the mortgage, followed by the staff and finally the credit cards.
Both purchases and advances correspond to the highest financing rates.
Withdraw or not withdraw cash with your credit card
So, the next time you are tempted to use your card to withdraw cash, you have to make a decision:
- If you can pay the entire loan on the next credit card payment date, it is justified. You will not pay interest.
- If you need more time, think twice. The interest you are going to pay is high.
If you need much more time, think of other alternatives: a personal credit, a credit with financial guarantee is usually better business.