The formula to calculate the Cash Advance Interest (I) is:
\[ I = \left(\frac{P}{AW}\right) \times \left(\frac{100}{m}\right) \]
Where:
Cash advance interest refers to the interest charged on a cash advance taken from a credit card. When a cardholder withdraws cash from an ATM using their credit card, the credit card issuer typically charges a higher interest rate on that amount compared to the interest rate for regular credit card purchases. This is because cash advances are considered riskier for the credit card issuer, as they are not backed by any collateral and are seen as a form of borrowing money. The cash advance interest rate is usually higher than the regular purchase interest rate and can vary depending on the credit card issuer and the terms of the card agreement. In addition to the higher interest rate, cash advances may also be subject to additional fees, such as a cash advance fee or ATM withdrawal fee. It is important for cardholders to carefully read and understand their credit card agreement to be aware of the specific terms and conditions regarding cash advances and the associated interest rates and fees.
Example 1:
Using the formula:
\[ I = \left(\frac{1200}{1000}\right) \times \left(\frac{100}{12}\right) \approx 10\% \]
Example 2:
Using the formula:
\[ I = \left(\frac{1500}{1000}\right) \times \left(\frac{100}{10}\right) \approx 15\% \]
