Credit: Buy now and pay later.
One of the luxuries of owning a credit card is being able to buy now and pay later. You may not always have enough cash on hand when you need it, but credit cards solve this problem with a simple swipe and a signature.
APR
APR, or annual percentage rate, is the interest rate that determines how much you have to pay back annually in interest fees. For most credit cards, the basic APR varies from 7 percent to 35 percent.
Cash Advance
Some credit cards allow you to get a cash advance. With an active PIN number, you can swipe your credit card at most ATMs and instantly get cash back.
Up-Front Cash Advance Fee
Most credit cards have an immediate cash advance fee of 2 to 4 percent of your withdrawal. For example, if you get a cash advance of $1,200 at a 3 percent advance fee, you have to pay back the $1,200 plus a $36 cash advance fee ($1,200 x 0.03 = $36).
Cash Advance Monthly Period Rate
Each month, a monthly periodic rate is applied to your outstanding cash advance balance. Usually credit cards report this rate as an APR, generally between 18 and 25 percent. To calculate this rate, you divide your yearly rate by 12 months. For instance, if your cash advance APR is 20 percent, your monthly periodic rate is 1.67 percent (20% / 12 = 1.67%).
Calculating Cash Advance APR Fees
Once you have your cash advance balance of $1,236, including your cash advance fee, you accrue a monthly interest fee based on your APR. Let's assume your APR is 20 percent. To calculate this fee, do the following: (current cash advance balance) x (APR as a decimal) / 12 = $1,236 x 0.20 / 12 = $206. Cash advance APRs are generally much higher than credit card APRs and can accumulate quickly if left unpaid.
