What is a cash advance on a credit card?

A cash advance allows you to borrow money against your credit card’s line of credit. Because you receive cash instead of making a purchase, it functions as a short-term loan. Credit card companies treat cash advances differently from regular transactions, and they generally come with additional fees and higher interest rates.

What you’ll learn:

• Credit card cash advances allow cardholders to borrow money against their credit lines.

• Cash advances may come with fees and have higher interest rates than typical credit card purchases. 

• Some credit card transactions beyond cash withdrawals could be classified as cash advances.

• Alternatives to getting a cash advance may include using an emergency fund or applying for a personal loan.

With a credit card cash advance, you’re borrowing cash against your card’s line of credit. But cash advance limits may be lower than your credit limit. 

Unlike a cash withdrawal with a debit card connected to a bank account, a cash advance is a type of short-term loan. And interest on a cash advance begins accruing immediately. There is no grace period.

You can pay down, or pay off, cash advances in the same way you make any other credit card payment.

First, check with your card issuer to find out the limit on what you can withdraw. Once you know the limit, there are a few different ways to go about getting the cash from your card:

• Online: Many card issuers allow you to request a cash advance online or through a mobile app.

• ATM: It’s possible to get a cash advance from an ATM using your PIN. But ATM fees may apply. 

• Bank: You can also get a cash advance from the local branch of your bank if you prefer to do it in person. The teller should be able to walk you through the process.

• Convenience check: These are blank checks your card issuer sends you. You can fill one out, then cash it or deposit it into your bank account.

Interest starts accruing immediately on cash advances, so consider only withdrawing what you need.

Even if you never actually hold the cash, there are other credit card transactions that issuers might classify as cash advances. They could include using a credit card to:

• Transfer money by wire or through peer-to-peer apps like Venmo
• Pay monthly bills
• Make payments on other debt, such as auto loans
• Purchase money orders
• Exchange dollars for foreign currency
• Buy lottery tickets
• Buy gaming chips or make other wagers

Credit card cash advances typically involve fees and a higher annual percentage rate (APR). And interest typically starts accruing immediately, with no grace period.

Here are some potential costs associated with cash advances: 

• Cash advance fee: This typically ranges from 3% to 5% of the amount of money you’re taking out or a flat amount, whichever is greater. It could be deducted from the cash advance when you receive it. Or it might be added to your balance. 

• Cash advance APR: The interest rate on a cash advance is also typically higher compared to that on standard purchases.

• Transaction fees: If you use your card to get a cash advance at an ATM that’s out of network, you could be charged a fee. There could still be transaction fees if you visit a branch.

To give you a sense of the true borrowing costs of a cash advance, here’s an example. Let’s say you take out a $300 cash advance. The card issuer charges a 5% fee, and the APR is 30%.

• Fee: 5% of $300 is $15.
• APR: 30% of $300 is $90.
• Monthly APR cost: $90 ÷ 12 = $7.50

You’ll owe the $15 fee no matter what. But the amount of interest you pay depends on how quickly you pay the loan back. Say it takes you one month to pay it back. You’ll end up paying $22.50 for the cash advance on top of the amount you borrowed.

• $15 fee + $7.50 interest = $22.50
• $300 cash advance + $22.50 in costs = $322.50 total

If you’re going to use your credit card to access cash, you may want to first consider:

• Instant cash: You get instant access to funds you can spend as you need.

• No loan application: Even though cash advances function as short-term loans, you won’t need to fill out an application or have your credit pulled.

• Additional costs: Cash advances can be an expensive way to access cash due to higher interest rates and additional fees, including cash advance, bank and ATM fees. 

• No grace period: When you take out a cash advance, interest typically begins to accrue immediately. This means you won’t have the option to pay off the balance without any interest charges.

• Impact on credit scores: Cash advances can affect your credit utilization ratio, which is the amount of credit you’re using versus your total available credit. It’s possible that a higher credit utilization ratio could cause your credit scores to drop.

If cash is a must, a cash advance could be helpful. But there may be other options to consider, too:

• 0% intro APR credit cards: If you can charge the expense to a credit card, a 0% intro APR credit card could help you avoid paying interest as long as you pay it back before the promotional period ends.

• Personal loan: These usually come with lower interest rates than credit card cash advances. If you need fast cash, a personal loan might be a less expensive option.

• Emergency fund: It may be tempting to hold on to your cash, but if you have an emergency fund you can tap into, you won’t owe yourself fees or interest.

Here are the answers to some frequently asked questions about cash advances.

A credit card cash advance can be a convenient way to access cash if you don’t have it readily available—one of the many benefits a credit card can offer. But cash advances are typically more expensive than other types of purchases with a credit card. That’s why it’s important to understand what qualifies as a cash advance and how it works.

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