All my credit cards allow for cash advances. But for some reason the limit for cash advances are always way lower than my actual credit limit, why is this? If a bank trusts me with credit to purchase things, how is that different than trusting me with cash?
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The Bank has a risk. In goods, there are two profiles, essentially it can be convenient and hence the usage, pay off monthly or spending future earnings today for luxury.
The way cash advance is seen, emergency, ran out of cash in foreign/remote location... Debit cards not working etc. One generally needs small amount of cash.
The other segment is loss of income. Essentially I have run out of cash and I need to borrow. This is additional risk and hence is limited or curtailed.
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Contrary to what many people think, credit card companies pass nearly all fraud costs via purchased goods onto the merchant who sells them. As a result, they stand a very high chance of getting the money from a fraudulent purchase of a specific purchased item back, as they just chargeback the merchant who has to stomach the cost.
This is not the case for cash transactions obviously, where as soon as the money leaves the ATM fraudulently it is as good as gone.
As a result, the risk profile of the two types of transaction is wildly different, and the credit limits of each reflect this.
Philip
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