A credit card cash advance can offer fast access to money using your own card, with no need to apply or get approved for anything. Taking an advance can be as easy as writing a check to yourself or stopping by a bank or ATM to withdraw cash. But cash advances are an expensive way to borrow money, much more expensive than regular credit card purchases.
Try to avoid cash advances unless essential, and then use caution. Before borrowing from your credit card, make sure you know how credit card cash advances work, when taking one might make sense and whether you have alternatives.
How Does a Credit Card Cash Advance Work?
A cash advance allows you to borrow money against your card’s line of credit to get cash. It’s like using a debit card to withdraw money from your checking account, but instead you pull from your credit line.
Maybe you need a way to pay a cash-only vendor at a festival, or a cash advance could help you cover an unexpected medical bill. A cash advance will appear on your statement just like any other charge, but it will begin accruing interest right away and continue until you pay it off.
Cash advances typically have higher annual percentage rates than regular purchases, and your issuer may charge a cash advance fee.
If your card allows you to access cash, you can usually do this in a few ways, including:
- At an ATM. You can visit an ATM and use your credit card and the PIN provided by your issuer to withdraw cash. Your transaction may be subject to daily ATM withdrawal limits.
- With a convenience check. Your credit card issuer may send you convenience checks to use for purchases or to withdraw cash from your account.
- At a bank. Credit card issuers may offer the option to visit a bank branch for a cash advance from your credit card.
- Online. Some credit cards allow you to make an online transfer to your bank account.
Note that cash advances are typically restricted to a percentage of your overall card limit. Let’s say your credit limit is $20,000 and your issuer caps advances at 20%; your maximum advance will be $4,000.
Types of Cash Advances
Three main types of cash advances are available, including:
- Credit card cash advances. You borrow on a line of credit through a card, but rates are high and interest begins to accrue immediately. Most cash advances include a fee.
- Payday loans. These short-term loans, also known as cash advances, feature both high APRs and fees. You can extend a loan if you can’t pay it back on time, but that adds even more cost.
- Merchant cash advances. This form of financing gives you an upfront payment in exchange for a percentage of your future sales. You repay the merchant cash advance as a percentage of your daily debit or credit card sales or as withdrawals from a bank account based on estimated monthly revenue.
Some types of credit card transactions may be considered cash advances, such as money transfers and cash-equivalent transactions, including:
- Cash-type transactions, such as wire transfers, money orders and traveler’s checks.
- Foreign or virtual currency exchange.
- Money transfers or payments to users on apps such as PayPal and Cash App.
- Bill payments using a third-party service.
- Purchases of lottery tickets or gambling chips.
If you’re concerned about unintentionally making a cash advance transaction, contact your credit card issuer about disabling or adjusting this function.
What Is the Cost of a Cash Advance?
Cash advances are subject to a cash advance fee, cash advance APR and other fees depending on the transaction.
“Cash advances can be a convenient and tempting way to get cash,” says Freddie Huynh, vice president of data optimization for Freedom Debt Relief. “This may be helpful when you’re in a bind, but as I like to say, ‘There’s no free lunch.’ The reality is cash advances can be expensive.”
Cash advance fees are a percentage of the cash advance amount, usually about 5%, with a $5 or $10 minimum. If you take out a cash advance at an ATM, expect to pay at least a few dollars in ATM fees, and banks may charge a fee to take out a cash advance in person.
You will pay not only the cash advance fee, but also interest on the advance, and interest is generally higher than regular card purchase APRs. Check your credit card statement to find out your card’s cash advance APR.
Cash advances typically have no interest grace period, which means that unlike regular credit card transactions, interest will start to accrue immediately. Always read the fine print on cash advances to understand all of the costs involved before you take out cash.
A cash advance might also cost you points off your credit score. When you increase your credit card balance with a cash advance, that lowers your available credit and increases your credit utilization.
Pros and Cons of a Credit Card Cash Advance
A cash advance is quick and easy. It is also an expensive way to borrow money, and the negatives far outweigh the positives.
“The main benefit of a cash advance is that you receive instant access to cash,” says John Schmoll, founder of personal finance website Frugal Rules. “Additionally, unlike other loans, you don’t need to qualify to receive the cash advance.”
But fees are a major drawback, he says. “You immediately begin to incur fees once you receive the cash,” Schmoll says. “These are also very short-term loans, so if you don’t pay them back quickly, the indebtedness can snowball.”
Pros
- Allows fast access to cash.
- Offers no-hassle withdrawals.
- Uses an account you already have.
- Requires no applications, credit checks or closing documents.
Cons
- Cash advance fees.
- ATM or bank fees charged by the financial institution that handles the transaction.
- Interest charges that start to accrue immediately.
- APRs that are generally higher than those for regular card purchases.
- No miles or points earned.
- Limit for advances that may be lower than overall credit limit.
Is a Credit Card Cash Advance Right for You?
Most people shouldn’t get a cash advance, but this option can come in handy if you need money in a pinch.
The convenience will cost you. Take a cash advance only if you’re comfortable with the fees and can pay back the advance quickly.
“Ask yourself how you intend to use the credit card cash advance and if it’s truly a necessity,” Huynh says. “And like any financial decision, you should make the decision with eyes wide open. In the case of cash advances, you’ll want to know exactly how much it’s going to cost you and whether the convenience of the cash outweighs the costs.”
Alternatives to a Cash Advance
A cash advance isn’t your only option for getting fast funds. Consider these cash advance alternatives:
- Make regular card purchases. Spending on your credit card instead of pulling out cash can save on interest charges and fees. You’ll skip the interest that starts accruing immediately, the higher APRs and the cash advance fees.
- Negotiate a payment plan. If you can’t afford a payment, ask if you can get an extension or break payments into smaller amounts over time.
- Tap your emergency fund. If you have the funds, always borrow from yourself because it is cheaper than your credit card.
- Consider a bank loan or online lender. You’ll have to apply and open an account, but these tasks might take less time than you think at a lower overall cost than a cash advance.
- Dip into home equity or retirement. Loans that use your home equity or retirement funds as collateral may offer low rates and fees, but you risk losing your assets if you default.
- Borrow from family members or friends. You might be able to borrow more affordably, but you can also put your relationship at risk. Carefully weigh the pros and cons, and put the loan terms in writing if you proceed.
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