Taking a credit card cash advance? Think twice

While a credit card cash advance may seem like a godsend for people in a financial pinch, it also comes with significant drawbacks.

Cash advances from credit card companies can carry high fees and interest rates, making it an expensive way to cover a shortfall, according to a new study from CreditCards.com. They also start charging interest immediately, unlike purchases made with credit cards, which have an interest-free grace period based on billing cycles.

It's likely that many Americans have been tempted to sign up for such cash advances, given that almost half don't have the funds to cover a $400 emergency expense, according to a Federal Reserve study published last week.

But before agreeing to a cash advance, consumers should be aware of what they are getting into, such as an average APR of 24 percent, or nine percentage points higher than the average purchase APR of 15 percent.

"It's something that can be pretty costly, and it's something that people might do in a situation when times get tough, although they might not have all the information," Matt Schulz, CreditCards.com senior industry analyst, told CBS MoneyWatch. While interest rates and fees for cash advances are included in a card's terms and conditions, Schulz noted, "The reality is a lot of people don't take the time to read those conditions."

Aside from generally higher interest rates, cash advances also include a fee, which commonly is either 5 percent of the advance or $10, whichever is higher. That means a $1,000 cash advance would cost a borrower an additional $69 even if it were to be payed in full within 30 days, because of a $50 fee (5 percent of the advance) as well as $19 in interest, the study noted.

Cash advances may also incur without the knowledge of borrowers, the study found. That's because certain transactions are often treated as cash advances if paid with a credit card, such as wire transfers, money orders, legal gambling purchases and bail bonds.

Still, cash advances may offer a lifeline to people considering even more expensive sources, such as payday loans, and they can be quicker than arranging for a personal loan. Some online payday lenders can charge an annual percentage rate of as much as 652 percent, Pew Charitable Trusts found in a study published last year.

"If you are somebody who, for example, has an emergency and needs $250 to hold you over for a couple of days until you get your paycheck, this can be the best of a bunch of a couple of bad options," Schulz added.

The report found that a few credit cards charged especially high interest rates for cash advances. In the lead was First Premier Bank credit card, at 36 percent, followed by the BP Visa and the Texaco Visa, which both stood at 29.99 percent. ExxonMobil's SmartCard, at 29.95 percent, had the fourth-highest APR on cash advances.