A cash advance is one of the most convenient ways to get money when you need it the most. For instance, if you find yourself in a cash-only establishment or if you’re short on money while tending to an emergency, it’s easy to withdraw cash from an ATM using your credit card.

The cash advance limit in credit card programs most of the time is typically around 20% to 50% of the credit limit, meaning that you can withdraw up to that portion of your credit limit from an ATM. This convenience, however, comes at a price. Cash advances are often the most expensive option available when you’re looking to borrow, and as such, any cash advance should be used wisely and sparingly.

Anyone considering a cash advance should know that they’re often seen as a last resort is because of the high fees and interest rates that come with them. Unlike regular credit card purchases, which may offer a grace period for repayment, the interest on a cash advance starts accruing the moment you take the money out. In addition to interest, there are other fees you must pay. These can quickly add up, making the real cost of the advance much higher than you might expect.

Knowing about and accurately calculating this cost can help you make the most sound financial decisions with a card like the Landers Cashback Everywhere Credit Card by Maya. Let’s look at some key tips to ensure you get the complete picture when taking out a cash advance:

1. Know the Cash Advance Fee

The first thing to check before taking out a cash advance is the cash advance fee your bank charges. Most local banks typically charge a fee that ranges from 3% to 5% of the total amount withdrawn. For instance, if you withdraw PHP 10,000, you could be charged anywhere from PHP 300 to PHP 500 as an upfront fee. While this may not seem much in smaller amounts, the fee gets larger as the withdrawal amount increases.

2. Factor in the Interest Rate

Cash advances have generally higher interest rates than those on regular credit card purchases. These rates can vary between 2% and 3.5% per month, which translates to annual rates of up to 42%. What’s very important to know is that this interest starts accruing immediately—there’s no grace period for cash advances, unlike typical card purchases where you might have a few weeks to pay without incurring interest.

It’s a must, then, to calculate how much you need to pay based on how long you expect to take to repay the cash advance. Multiply the interest rate by the number of months it will take you to pay off the cash advance in full. The longer you take, the higher the total interest will be, making it essential to settle the debt as quickly as possible.

3. Remember That There Is No Grace Period

As mentioned above, cash advances begin accruing interest from the moment you withdraw the funds. There’s no grace period, unlike with regular purchases where you might have 30 days to settle the bill before interest kicks in. This means you should plan to repay the cash advance immediately, or at least as soon as you can.

4. Check for Additional ATM Fees

If you’re using an ATM to withdraw cash, especially one from a different bank than the issuer of your credit card, you may also be charged additional ATM fees. These fees typically range from PHP 10 to PHP 15 for domestic transactions, but they could be higher depending on the bank or the type of ATM.

Although these fees might seem small compared to the cash advance fee and interest, they still add up and contribute to the overall cost. To avoid this extra cost, use ATMs operated by your card’s issuing bank.

5. Include VAT on Fees

It’s worth remembering that the Value-Added Tax (VAT) applies to most services in the Philippines, including financial services such as credit card cash advances. This tax is 12%, and it can be added on top of the cash advance fees, increasing the total cost.

Be sure to check with your bank if VAT applies to your transaction. If it does, factor it into your calculations by adding 12% to any fees. Ignoring VAT may lead you to underestimate how much you’ll eventually owe.

6. Calculate Based on the Repayment Timeline

Time is of the essence when you’re aiming for accurate total cash advance calculations. One of the most important factors to consider when determining the real cost of a cash advance is the repayment timeline.

If you take out a cash advance and can repay it within a month or two, your costs will be limited mostly to the interest for those months, along with the initial fee. However, if you take longer, the interest will continue to grow.

7. Use a Cash Advance Calculator

To make things easier on customers, many banks and financial websites offer cash advance calculators. These tools allow you to input the amount you plan to withdraw, the interest rate, and the number of months you expect to take to repay the advance. The calculator will then show you the total cost, including fees and interest. Using these tools can help you accurately predict how much a cash advance will cost, which in turn will allow you to decide whether taking one out is the right move for your situation.

8. Check Your Statement Carefully

After taking out a cash advance, make sure to carefully check your credit card statement. This will show you all the fees, interest, and charges that were applied, and you can compare them to your initial calculations to ensure everything is accurate. Be extra conscientious about checking your statement to track your expenses and be in the know about how much you’re being charged.

Your ability to calculate the real cost of a credit card cash advance can help you avoid financial surprises that often come with these withdrawals and, in general, manage your debt better. Factor in all the fees, interest rates, and repayment timelines to stay in full control of your expenses and make clear-headed decisions that will allow you to stay out of a debt trap.