A cash advance is a short-term loan borrowed from your credit card company through your credit card. Cash advances are usually easy to get: there’s no application and you can get them through a bank or even an ATM.
Cash advances are also expensive: fees are often steep, interest rates may be higher than those applied to purchases, and you will usually pay interest even if you pay your next credit card statement in full.
Cash advances can be useful in an emergency, but you may wish to consider using them only when necessary and looking for alternatives whenever possible.
How Does a Cash Advance Work?
Most credit card companies allow you to take out a short-term loan using your credit card and call it a cash advance. The amount of cash that you can borrow is usually limited to an amount lower than the credit limit on the card. Your cash advance limit should be listed on your statement or your credit card agreement. If it isn’t, ask your issuer.
If your credit card has a PIN you can often draw your cash advance through an ATM. You can also bring your card to a bank that offers advances through your credit card network. You will usually need to present identification if you want a cash advance through a bank.
Some credit card issuers provide convenience checks that you can use the same way you’d use a regular check, but they will draw against your cash advance limit on the associated card. Just fill out the check and deposit it at your bank or credit union.
Be warned that some credit cards may treat wire transfers, money orders or cryptocurrency purchases as cash advances. Check your credit card agreement or ask your issuer if you aren’t sure.
What Does a Cash Advance Cost?
A cash advance is a loan. As with most loans, you will pay fees and interest.
You will usually pay a cash advance fee. This fee may be a minimum flat fee or a percentage of the advance amount, depending on which is higher. If you draw a cash advance at an ATM you will usually pay an additional ATM fee for every withdrawal. If you get your cash advance at a bank or credit union they may also charge a fee.
You also pay interest on your cash advance with a rate that is typically higher than your normal purchase interest rate. Check your credit card agreement for your cash advance interest rate.
Credit card issuers usually offer a grace period for interest on purchases if you pay the balance of every statement in full you don’t pay interest. This grace period will usually not apply to cash advances, however. You will pay interest from the day you take the advance, and the interest will be compounded daily.
Remember that while credit card issuers are required to apply anything above your minimum payment to the balance with the highest interest rate, they can apply the minimum payment to any balance they choose. If you are only making minimum payments, that money could be applied to your lowest-interest balance, and that high-interest cash advance could be piling up interest. If you have a cash advance on your balance, try to pay more than the minimum balance until it’s paid off.
Should You Get a Cash Advance?
Credit card issuers make cash advances easy because cash advances are very profitable for them. They may not be a good idea for you.
When you add up the fees and the interest, cash advances are among the most expensive loans you can get. Only payday loans and some short-term loans from online lenders carry higher interest rates. Cash advances can harm your credit and rack up high fees and interest expenses.
If you have more than one card, be sure you know the cash advance fees and interest rates for each card you own. If you need to use a cash advance, use the card with the lowest cash advance costs.
Like any loan, a cash advance can affect your credit. Your credit utilization – the percentage of your credit limit that you have used – affects your credit. You want to keep your balance below 30% of your credit limit if possible, and lower is better. If your cash advance pushes your balance above this level it could hurt your credit.
Alternatives to a Cash Advance
A cash advance may be the easiest way to get money in an emergency, but it’s not the only way. Consider these possibilities before going for that cash advance.
- Delay purchases until you have access to cheaper cash or you can make the purchase with a credit card. If you’re considering a cash advance to make a purchase from a seller that doesn’t accept cards, remember that the fees and interest on the cash advance effectively become part of the purchase price. Do you really need that item right now?
- Consider a personal loan. Personal loans also charge fees and interest, but they are usually lower than those of a credit card cash advance. Compare prices from online lenders or your bank or credit union.
- Consider an overdraft on your checking account. You’ll pay a fee but it’s likely to be less than what you’d pay for a credit card cash advance.
- Borrowing from friends or family is never pleasant, but it is cheaper than a credit card cash advance. Put your agreement in writing and be sure to pay it back on time and with thanks.
- Payday alternative loans are offered by many credit unions as a way to help their members avoid expensive payday loans. They can also help you avoid a credit card cash advance.
- Lending circles are provided by nonprofits in some areas. They often provide access to short-term loans at affordable rates. Search online for lending circles in your area.
Payday loan companies and some short-term online lenders also provide quick cash, but their fees and interest rates are usually even higher than those of credit card cash advances. You will probably want to treat these as a last resort, not as a viable alternative to a credit card cash advance.
The Bottom Line
A cash advance is a very expensive way to get money. It can be a useful and even necessary tool in some emergency situations. If you need emergency plumbing or car repairs and you don’t have cash or an ATM card with you, a cash advance can bail you out.
If you find yourself relying on credit card cash advances for routine purchases or as a way of getting through to your next paycheck, that could be a sign that there’s something wrong with your finances. You may wish to reassess your spending habits and budget your money more carefully. It may be time to consider credit counseling.
Like any expensive short-term loan, a cash advance is usually best considered as a last resort, for emergency use only. It’s a good option to hold in reserve, but you will probably not want to use it on a regular basis.