How often do you receive a text or a promotion from your bank as follows:
‘Instant Cash Advance at 0% Interest. Repay in 12 months. Fast Approvals.’
Are you tempted to grab the offer?
Or, are you the type who is sceptical about the offer?
I often receive questions from readers who are tempting to get that ‘zero-interest’ cash to invest in stocks or pay down their home loan.
Before you decide, I would like you to go through the following case studies.
I shared my thoughts on Cash Advances:
- How Can You Evaluate A Cash Advance Offer?
- What is the ‘Hidden’ Actual Effective Rate of a Cash Advance Offer?
- Terms & Conditions to Look Out For.
- Should You take a Cash Advance for Investments?
- Case Study: Dissecting Real Life Offers from Maybank & RHB
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Assignment
- Complete the exercise in PWM Personal Finance Workbook
- Choose a current offer of cash advance provided by any bank. Analyse and post your finding in the comment section below.
9 replies to "Instant Cash at 0% Interest! What’s the Catch?"
where can we get the spreadsheet ?
We just put up the link to the spreadsheet below the video
Hi KC, this cash advance offer i found at CIMB website.
https://www.cimb.com.my/en/personal/day-to-day-banking/cards/credit-card-services/cash-advance.html?cid=a1:pb_a2:cc_a3:cashadv_a4:231220_a5:edm_a6:bank_a7:v1_a8:text
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Repayment Table
Example:
Loan Amount (RM) Cash Advance Fee 5% (RM)
2,000 100
10,000 500
Fees and Charges
Upon withdrawal, there will be a charge 5% of the total cash advance amount or a minimum fee of RM15.00, whichever is higher.
Interest Rates
1.5% per month or 18% per annum calculated on daily rest basis from transaction date to the date it is settled in full.
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Let said i cash out RM10,000 for 12 months installment.
My answer is Total payment Rm10,500, 12months installment RM875. Rate Monthly (i use IRR formula) is 2.28% and Rate yearly is 27.30%.
So the 1st month i need to pay is RM1375, following month is RM875 to end. Or still need to add 1.5% for following month? which is RM875 + RM43.75 ?. so in total 11 month is RM481.25? ?
TQ.
According to the website:
– You will have to pay 5% upfront = RM500
– Also need to pay 1.5% interest every month.
In this case, there is no repayment table. It is entirely up to you how much you want to pay back, and when you want to pay back.
If you don’t pay anything, the 1.5% interest each month will add to your outstanding loan.
Sort of like a credit card debt.
what if the bank gives 0% interest with 0% advance fee, does that mean the borrower is at gain (saving interest cost)? assuming I need the cash to ease my financial burden.
https://www.hsbc.com.my/credit-cards/offers/zero-interest-instalment/#footnote-2
Yes. That works to your advantage. Just be cautious to read the T&C to verify that it is in fact 0% interest and 0% advance fee.
Because banks are profit-making businesses, not charity organisations.
Hi KC,
Trying to calculate for below offer from standard chartered, have a look if it’s calculate it correctly?
https://www.sc.com/my/promotions/cash-on-call-plus/
For 5k loan, fix interest rate 9.88%, cash advance fee rate 2% or RM 25 (whichever higher) for 1,000-9,999 loan amount, Total 12 months payment is 6,693.96. using IRR formula to get monthly rate 1.8% and yearly rate 21.6%.
For 10k loan, fix interest rate 9.88%, cash advance fees 0% for 10k and above loan amount, Total 12 months payment is 10,988.04, using IRR formula to get monthly rate 1.48% and yearly rate 17.76%.
Overall the 0% one time cash advance fee offer for 10k and above loan amount can be misleading for public thinking that opting to loan higher amount is a better offer but bank is still earning total 17.76% interest from customer correct?
I don’t think the bank is misleading saying that 0% one time cash advance fee is waived for RM10k.
It just means the more you borrow, the less fee charged (relatively).
Of course, in absolute term, they earn more. But they charge you less, relative to the amount you borrow.
Which I think is a logic way to charge fee because the work involved is the same whether you borrow little, or a lot.