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Brits blowing £17m on expensive card charges each month

Brits blowing £17m on expensive card charges each month

Oct 3rd 2022

For immediate release

TotallyMoney, the credit app on a mission to help everyone move their finances forward, has issued a warning to those using credit cards to withdraw cash, highlighting high fees, mass scale use, and a lack of awareness:

  • Each month, Brits are using credit cards cards to withdraw £240m* in cash, resulting in a whopping £16.9m in interest charges and fees**
  • The average cash advance of £139 could cost an extra £10 in interest and fees**
  • The total value of transactions of which are card cash advances has rocketed by 38% in past 12 months*
  • Just 46% of respondents to a YouGov survey, commissioned by TotallyMoney were aware that withdrawing cash with a credit card could trigger extra fees and a higher interest rate†

This 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 nation’s finances.

How do Cash Advance fees work?

Just like with a debit card, you can take cash out of the ATM with a credit card. However, when you do it’s likely you’ll be charged a ‘cash advance fee’ and a higher rate of interest — immediately.


This fee is charged as a percentage of the amount withdrawn, or a flat fee. This will typically be around 3% or £3 — whichever is higher.


Credit cards provide an average 58 days to clear the balance before you’re charged interest. But with cash advances, interest will kick in from the day you make the transaction, and it’s likely to be at a higher rate than the standard purchase rate on your credit card.


Cash advances will usually be excluded from any 0% interest offers — leaving customers with even more to pay.


TotallyMoney calculated that for the average cash advance transaction of £139, a customer would pay an additional £10 in interest and fees**.


Withdrawing cash on a credit card may also have a negative impact on one's ability to borrow in the future as  they can make somebody look cash hungry, acting as a red flag to lenders.

What counts as a cash advance? 

You may assume a cash advance only applies to using a credit card for ATM withdrawals, but this isn’t the case. There are several other types of credit card transactions that can be classified as ‘cash’, including paying off Buy Now Pay Later debts, utility bills, mortgage statements, and buying foreign currency.


With the new energy price cap, and an increase in energy consumption as we enter the winter months, some may be turning to credit to cover payments. However, research by TotallyMoney found that only 7% of consumers realised that paying a utility bill could count as a cash advance. 

The growing appetite for cash advances

The figures are particularly worrying right now, as soaring inflation squeezes the finances of an increasing number of households, making it more and more difficult to make ends meet.


Citizens Advice reported two in five Buy Now Pay Later have borrowed to make repayments¶, while others are reportedly turning to cash to help with budgeting‖.


Meanwhile outstanding balances on credit card accounts have grown by 10.9% over the 12 months to June. In June 2022 Brits carried out credit card cash transactions to the value of £240m, compared to £174m in June 2021*.


Alastair Douglas of TotallyMoney comments:


“Consumers should think twice before using a credit card to withdraw cash. Doing so can lead to extra fees and a higher interest rate, meaning you’ll repay more than you borrowed.


“Cash advances will not only cost more, but could impact your ability to access credit in the future. This is because they can act as a red flag to lenders, signalling bad financial management. Those with cash advances on their credit files may be looked at in a negative light by lenders, and so are rejected. This could mean more cash advances are needed to cover costs, so a vicious circle is created.


“At TotallyMoney, we’re on a mission to help everyone move their finances forward. Putting customers in control of their own financial data is an essential part of that, and why our free app provides personalised notifications, highlighting costly borrowing behaviours such as cash advances.”

TotallyMoney’s top five cash advance takeaways

  1. Cash advances are more expensive than ‘normal’ credit card transactions: The average withdrawal of £139 could incur typical charges of £10.
  2. Cash advances are immediate: interest-free periods usually don’t apply and costs start accruing the moment the transaction is made.
  3. Cash transactions can impact your ability to borrow later: lenders see these transactions as a sign of bad financial management and be more reluctant to lend at a later date
  4. Know your limit: as they’re seen as a risky option, lenders will often give customers a lower cash advance limit than the maximum available on their credit card.
  5. It’s not just cash withdrawals: Cash advances can also be paying a utility bill, clearing buy now pay later debts and buying foreign currency

References


* UK Finance

** Based on typical cash advance fee of 3.2% and 27.9% AER with 56 days interest
† YouGov survey commissioned by TotallyMoney: Total sample size 2441 adults. Fieldwork undertaken between April 2022.
Post Office

Citizens Advice


For more information, please contact the press team

About TotallyMoney

With a focus on the one in three UK adults financially under-served by the financial services industry, TotallyMoney is the credit app on a mission to help everyone move their finances forward.

TotallyMoney believes people’s financial data should work for them, and not against them and with more than four million customers, they provide the UK’s only free, live credit score and report.

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