A cash advance allows you to use your credit card to get a short-term cash loan at a bank or ATM. Unlike a cash withdrawal from a bank account, a cash advance has to be paid back — just like anything else you put on your credit card. Think of it as using your credit card to “buy” cash rather than goods or services.
At your bank: You can ask your teller for a cash advance with your credit card. At an ATM: You can insert your card, enter your PIN and receive your cash. With a check: If you’ve been given checks by your credit card issuer, you can fill one out to yourself. Then you can either cash it or deposit it at your bank. Meanwhile, a cash advance doesn’t directly affect your credit score, and your credit history won’t indicate you borrowed one. The cash advance balance will, however, be added to your credit card debt, which can hurt your credit score if it pushes your credit utilization ratio too high.
How do I avoid cash advance fees? The only way to avoid a cash advance fee is by avoiding cash advances and cash equivalent transactions on your credit card. If you can’t avoid the transaction completely, you can minimize the cash advance fee you pay by reducing the amount of cash you withdraw on your credit card. The cash advance limit is the maximum amount of cash that can be withdrawn against a credit card’s balance. With most credit cards this will be considerably lower than the credit limit itself. Cash advances come with high fees and above-average interest rates, that’s why we advise against them.
What Is A Credit Card Cash Advance?
A cash advance is a service provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit; for a credit card, this will be the credit.
Cash advances often incur a fee of 3 to 5 percent of the amount being borrowed. When made on a credit card, the interest is often higher than other credit card transactions. The interest compounds daily starting from the day cash is borrowed.
Some “purchases” made with a credit card of items that are viewed as cash are also considered to be cash advances in accordance with the credit card network’s guidelines, thereby incurring the higher interest rate and the lack of the grace period. These often include money orders, prepaid debit cards, lottery tickets, gaming chips, mobile payments, and certain taxes and fees paid to certain governments.
However, should the merchant not disclose the actual nature of the transactions, these will be processed as regular credit card transactions. Many merchants have passed on the credit card processing fees to the credit cardholders in spite of the credit card network’s guidelines, which state that credit card holders should not have any extra fee for doing a transaction with a credit card.
Undercard scheme rules, a credit card holder presenting an accepted form of identification must be issued a cash advance over the counter at any bank which issues that type of credit card, even if the cardholder cannot give their PIN.
What Is a Cash Advance Using a Credit Card?
A cash advance is a way of obtaining immediate funds through your credit card. It is not unlike a payday loan, only the funds are being advanced not against your paycheck but against your card’s line of credit. In one sense, a cash advance acts like any other purchase being made through your credit card, but instead of buying goods or services, you are “buying” cash.
What many people don’t understand about cash advances is that your credit card handles them differently from the way it handles credit on purchases. Taking a cash advance is not the same thing as using your card for products or services.
Among other things, the cash advance interest rate may be higher and there may be a transaction fee. A cash advance may still make sense compared to other ways of getting a quick loan, such as a payday loan, which must be paid back, usually by your next paycheck.
How to Get a Cash Advance from a Credit Card
Cardholders obtain a cash advance by visiting an ATM, bank, or other financial institution, or by requesting a check from the credit card company. In fact, some card issuers periodically send checks in the mail as a way to entice consumers into getting a cash advance from their cards. Check your credit card terms to find out what your cash advance limit is and how much credit is available to you for a cash advance.
If the card company invites you to take a cash advance, what could be wrong? You probably already know the overall answer to that question. But the devil is in the details, and you need to fully understand what you’re getting into before you exercise your cash advance option.
Credit Card Cash Advances vs. Regular Purchases
Credit card companies like cash advances in part because they treat the interest on them differently from interest on card purchases. There are different terms for credit card purchases versus cash advances. For one, the interest rate is often higher on a cash advance by several percentage points,
Also, any special interest-rate promotions on the card—such as no interest until a certain date—may not be applicable on cash advances, meaning you could get dinged unexpectedly.
Besides charging a higher-than-normal interest rate, credit card companies also automatically charge a transaction fee on the advanced sum—for example, 3% to 5%, or a flat rate of, say, $10, whichever is greater. What’s more, cash advances do not typically qualify for rewards, cash-back programs, or any other credit card benefits. Your cash advance line is almost always considered to be separate from the rest of your credit balance.
You can learn the details for your particular card from its website or the documents you were given when you signed on—if it’s a special offer, that’s the part you should check.
How Does Credit Card Interest Work with a Cash Advance?
As noted above, the interest charges on a cash advance are different from those on a purchase. Not only is the rate generally higher for a cash advance, but there is no grace period, which means that interest starts to accrue from the date of the transaction.3 And you will pay interest on your cash advance even if you pay it off in full and had a zero balance for that billing cycle.
You also have the option of paying off the cash advance over time, just as you can with a purchase, as long as you make minimum monthly payments.
How your payments are applied
Thanks to the Credit Card Act of 2009, credit card payments above the minimum payment amount are made to higher-interest purchases first. This was a major change to how credit card companies can apply payments (previously companies could apply payments to lower-interest purchases).
Let’s say you have a $5,000 balance on a card with a special annual percentage rate (APR) of 10% that you plan to take 15 months to pay off, and while you are doing so you take out a $500 cash advance that generates 22.5% in interest. Depending on how large a payment you make, it may be split between your balances.
If you only make the required minimum monthly payment, in all likelihood it will be applied to the $5,000 balance—that is at the credit card issuer’s discretion. Since you are already carrying a balance on your credit card, you will have to pay more than the minimum to pay off the cash advance more quickly.
Cost of a Cash Advance
Cash advances have a higher cost than regular transactions. You’ll be charged a cash advance fee and, usually, a higher interest rate than you’d pay for purchases. The cash advance fee can be charged as a percentage of the cash advance or a flat rate. For example, your credit card issuer may charge a fee of 5% of the advance or $10, whichever is greater. Check your credit card terms to confirm the exact fee you’ll pay for cash advances.
Cash advances don’t have a grace period, meaning interest begins accruing on the balance as soon as the transaction is completed. This is true even when you pay your balance in full and start the billing cycle with a zero balance. You’ll always pay a finance charge on a cash advance even if you pay it in full when your billing statement comes. To reduce the amount of interest you pay on a cash advance, pay it off as soon as possible, even if that means paying before your billing statement comes.
In addition to the cash advance fee, you’ll also be charged an ATM fee when you use an ATM for a credit card cash advance.
In Conclusion
Some transactions are treated as a cash advance even though you never physically withdrew cash on your credit card. For example, if your credit card is set up for overdraft protection, the overdraft amount will be treated as a cash advance.
Wire transfers, money orders, and cryptocurrency purchased with your credit card may also be considered cash advances. Refer to your credit card agreement to figure out which transactions may be treated as cash advances.
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