Credit card cash advances have high withdrawal fees and interest rates. Here’s an option that will actually save you money if you need to borrow cash in a hurry.
Interest rates, terms, and conditions are valid as of 11 October 2016.It’s easy to confuse credit lines with credit cards as they are quite similar, but we can assure you that they both offer very different things. Of all the personal loans available in Singapore, credit lines provide the fastest and most convenient access to cash whenever you need to borrow.
Here’s a crash course on how credit lines work.
What is a Credit Line?
A credit line is an agreement with a bank where the bank promises to lend you any amount of money during a set period of time up to a certain limit.
Unlike a regular installment loan where you borrow a fixed lump sum and pay it off after a certain period, a credit line instead allows you to borrow a flexible amount and only when you need it. A credit line is suitable for you if you have irregular access to funds, but have monthly expenses to pay.
However, be sure to pay back the loan amounts quickly as high interest is charged on any outstanding debt unpaid, usually on a daily basis.
Credit lines also provide quick access to funds as you can withdraw the money you borrow exactly as how you would for your normal savings account. This includes:
- Withdrawing from an ATM
- Writing a cheque from a cheque book that links to your credit line account
- Transferring money to your savings or current account
Credit Line versus Credit Card
Credit lines work similarly to credit cards in that both provide you with ready credit sources up to a limit to be spent on whatever you want. However, that is where the similarities end.
No Withdrawal Fees
Credit cards charge you a cash advance fee, which is 6% of the withdrawn amount or S$15 – whichever is higher. Credit lines do not charge you withdrawal fees at all.
Cheaper Source of Urgent Cash
Credit lines offer lower interest rates on cash as compared to the cash advance feature on credit cards.
When people require cash very urgently, they usually activate the cash advance feature on their credit cards to get a quick loan. However, you could get the same amount of cash at a far lower interest rate through a credit line.
Let’s say you withdraw S$1,000 from DBS Cashline and get a S$1,000 cash advance from a DBS Credit Card.
|Comparison of Interest Rates and Charges between DBS Cashline and DBS Credit Card Cash Advance|
|DBS Cashline (Credit Line)||DBS Cash Advance (Credit Card)|
|Withdrawal Fee||S$0||S$60 (6% * 1,000)|
|Interest Rate Incurred on Day 1||19.8% * S$1,000 / 365 Days= S$0.54||28% * S$1,000 /365 Days= S$0.76|
|Interest Rate Incurred After 30 Days||S$16.2||SS$23.0|
|Total Interest and Charges||S$16.2||$83 (S$23 Interest + S$60 Withdrawal Fees)|
Between the two, DBS Cashline lets you save S$66.80 due to lower interest and no withdrawal fees.
Note that there could also be a minimum interest rate payable per period as required by the bank.
For example, a DBS Cashline account requires a minimum interest payment of S$10 per month. This means that if your accumulated interest payable that month is lower than S$10 (e.g. you did not borrow any money), you would still have to pay the minimum interest payment regardless.
Some credit lines even start you off with cash rebates or other welcome gifts. For instance, anyone who applies for a DBS Cashline account online before 30 November 2016 gets S$80 NTUC FairPrice vouchers upon approval.
The Key to Paying Less With a Credit Line
As with all banking products, interest rates should be your top concern. Interest is incurred on a daily basis on whatever amount you borrow.
Banks usually offer very low-interest rates in the first year – around 8% to 9% per annum – before raising them to the standard rates after which can be as high as 25% per annum. Make sure you are aware of the how the interest rate changes after the first year.
There could also be a minimum interest rate payable per period required by the bank.
For example, a DBS credit line account requires a minimum interest payment of S$10 per month. This means that if your accumulated interest payable that month is lower than S$10 (e.g. you did not borrow any money), you would still have to pay the minimum interest payment regardless.
A credit line charges a daily interest rate on any money you borrow. This means that your outstanding balance is increasing every day that you do not pay it off.
When you miss a bill, you will be charged an additional late fee on top of the daily interest on your outstanding balance.
Always pay back any amount you borrow with a credit line as soon as possible.
Singsaver.com.sg, Singapore’s go-to personal finance comparison platform, guides consumers on the best money habits with its credit card comparison tool and allows real-time personal loans product comparison.