Brits spend £17m a month on credit card charges

Credit card users have been warned to watch out for expensive “cash advance fees” on credit cards.

TotallyMoney has calculated that Britons use credit cards to withdraw £240m in cash every month, resulting in a whopping £16.9m in interest and fees.

The credit application determined that an average cash advance of £139 could cost an additional £10 in interest and fees. It also found that the total value of cash advance transactions had jumped 38% over the past 12 months.

Only 46% of respondents to a YouGov survey, commissioned by TotallyMoney, knew that withdrawing money with a credit card means paying additional fees and a higher interest rate.

The news comes as people are turning to cash to help manage the soaring cost of living as inflation continues to tighten its grip on the country’s finances.

How do cash advance fees work?

Just like with a debit card, you can withdraw money from an ATM with a credit card. However, if you do, you are likely to be charged a “cash advance fee” and a higher interest rate, with interest charged immediately.

These fees are charged as a percentage of the amount withdrawn or as a flat fee. This amount will usually be around 3% or £3, whichever is greater.

When you make a purchase, credit cards offer an average of 58 days to settle the balance before you are charged interest. But with cash advances, interest will begin to accrue from the day you make the transaction, and it will likely be at a higher rate than the standard purchase rate on your credit card.

What counts as a cash advance?

Many people assume that a cash advance only applies to using a credit card for ATM withdrawals, but this is not the case.

There are several other types of credit card transactions that can be categorized as “cash,” including refund, buy it now, pay debt later, utility bills, mortgage payments, and purchase foreign currency.

A study by TotallyMoney found that only 7% of consumers realize that paying a utility bill can count as a cash advance.

Alastair Douglas, CEO of TotallyMoney, said: “Consumers should think twice before using a credit card to withdraw money. This can lead to additional fees and a higher interest rate, which means you’ll pay back more than you borrowed.

“Not only will cash advances cost more, they could impact your ability to access credit in the future. Indeed, they can act as a red flag for lenders, signaling poor financial management. Those who have cash advances on their credit records may be viewed in a negative light by lenders and are therefore rejected. This could mean that more cash advances are needed to cover costs, creating a vicious cycle.