Cashback and cash advance are different things, but do you know the differences between the two concepts? Know how and when to use them.
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Cashback and cash advance are two relatively common expressions in banking language. The two concepts, although different, can cause some confusion for those who do not master this terminology. Therefore, it is important to clarify all doubts.
There are two ways to get money using your bank cards, although through different means and with different charges. If you have credit cards and have read the contractual conditions, you’ve certainly heard of cashback and cash advance.
Having in common the word “cash” (money), these two concepts are distinct and it is not convenient to confuse them. It’s just that, as we’ll see, cash advance can have costs and cashback may not always be as advantageous as it seems.
What is cashback?
Cashback is a feature of some credit cards that allow you to return part of the amount you spent on purchases paid with that card. The percentage value depends on the card, but generally varies between 1 and 3%.
This means that if you use a card with cashback to make a purchase worth €100, the following month you will be refunded 1% of that amount, that is, €1. There may also be cases in which this cashback does not correspond to money, but to services or discounts, such as air miles or a reduced price when buying from certain bank partners.
Not all banks have cards with a cashback option. Before deciding to join this modality, it is important to understand if it pays off. That is, whether the use you are going to make of your card will be enough to pay the annuity and the APR, the interest rate that applies to each purchase.
What is cash advance?
In the case of cash advance, you are receiving an immediate credit, that is, receiving money that you do not have or that is not immediately debited from your account. This is what happens, for example, if you withdraw money with your credit card.
In practice, the cash advance it’s a cash advance🇧🇷 However, given that it is a loan, it comes with charges. Therefore, before using it, you should know the interest rates and commissions associated with this modality.
Cash advance: care to be taken
The ability to use cash advance can be useful in certain circumstances. For example, if you need money urgently and you don’t have that amount in your checking account. However, it is important to realize that by making this withdrawal you are contracting a credit.
Thus, and as with all credits, you will have to repay that money, adding commissions and interest. Commissions can consist of a fixed amount per operation and a percentage of the amount made available. The Annual Global Effective Charge Rate (TAEG) for credit cards has limits that are defined quarterly by the Bank of Portugal.
Also bear in mind that the money you withdraw using cash advance will have to respect the ceiling agreed with the credit institution. This amount will be deducted from the ceiling, thus reducing the amount available.
Another important piece of information concerns cash advance abroad, that is, when to use your credit card to withdraw money outside Portugal. In this case, your bank may charge you comissions due to the use of the card abroad🇧🇷 That is, it will have even more expenses.
The option for cash advance should, therefore, be well considered, as this gesture will incur charges.
If you are in an uneasy financial situation, resorting to this modality is not advisable, since, in practice, you are contracting new credit and increasing your indebtedness.
How to know the costs?
When subscribing to a credit card, carefully read all the contractual conditions to understand the charges associated with the use of this payment method.
If in doubt, you can always consult the amount of these costs in the institution’s price list, which should be available at branches and on your bank’s website. On the Banco de Portugal website you can find the prices of banking entities operating in Portugal🇧🇷
The information available is, by legal obligation, the most current. Therefore, and if you are unaware of the commissions that may be charged for the cash advance, this is a good way to obtain this data.
If you still don’t have a credit card and want to compare the fees charged by different banks, you can also go to the Banco de Portugal website and use the commission comparator🇧🇷 In this case, simply choose the “By service” option, select Credit Card and then Cash Advance.
Article originally published in November 2021. Updated in December 2022.
