What Is a Cash Advance on a Credit Card

When faced with unexpected expenses or a temporary financial crunch, a cash advance can offer a quick and convenient solution. A cash advance allows you to access funds from your credit card’s available credit line, providing you with immediate cash. However, it’s important to understand how cash advances work and the potential implications before utilizing this option.

How Does a Cash Advance Work?

When you take out a cash advance, you’re essentially borrowing money from your credit card company. The amount of the cash advance will be deducted from your credit limit, and you’ll start accruing interest immediately. The interest rate on cash advances is typically much higher than the interest rate on regular credit card purchases. The amount you can withdraw is usually limited to a portion of your credit card’s available credit line. Unlike regular credit card transactions, cash advances often have higher interest rates and additional fees that are applied immediately. Interest charges on cash advances usually start accruing from the moment the cash is withdrawn.

How to Get a Cash Advance on a Credit Card

There are a few different ways to get a cash advance on a credit card. You can:

1. Using an ATM: One of the most common methods of obtaining a cash advance is by using an ATM. To do this, insert your credit card into the ATM machine and follow the instructions on the screen. Select the option for a cash advance and enter the desired amount you wish to withdraw. Keep in mind that there may be a limit on how much you can withdraw as a cash advance, which is typically a percentage of your credit limit. Once the transaction is complete, the ATM will dispense the requested cash, and the amount will be added to your credit card balance.
2. Visiting a Bank: Another option is to visit a bank and request a cash advance. You can go to a branch of the bank that issued your credit card or another bank that accepts cash advances from credit cards. Approach the teller and let them know you would like to obtain a cash advance on your credit card. They will ask for your credit card and identification, and you may need to fill out a cash advance request form. Once approved, the teller will provide you with the requested cash, and the amount will be added to your credit card balance.
3. Contacting Your Credit Card Company: If you prefer not to use an ATM or visit a bank, you can contact your credit card company directly to request a cash advance. Look for the customer service number on the back of your credit card or on your credit card statement. Call the customer service line and inform the representative that you would like to get a cash advance. They will guide you through the process and may ask for some information to verify your identity. If approved, the representative will let you know the amount you can withdraw and any applicable fees. The cash advance will be added to your credit card balance, and you can expect to receive the funds through a direct deposit or a check.

It’s important to note that the availability and terms of cash advances may vary depending on your credit card issuer. Some credit cards may have specific limitations, such as daily withdrawal limits or restrictions on the types of ATMs or banks you can use. Additionally, cash advances often come with higher interest rates compared to regular credit card purchases, and interest charges may start accruing immediately.

What to Consider Before Taking Out a Cash Advance

Before opting for a cash advance, it’s important to consider the following factors:

• Interest Rates: One crucial factor to consider before taking out a cash advance is the interest rate. Cash advances typically come with higher interest rates compared to regular credit card purchases. While the interest rate for regular purchases may range from, for example, 15% to 25% APR (Annual Percentage Rate), the interest rate for cash advances can be significantly higher, often exceeding 25% APR or even reaching 30% or more. This higher interest rate means that borrowing through a cash advance can quickly become expensive if not paid off promptly.
• Cash Advance Fees: In addition to the higher interest rate, credit card issuers typically charge a cash advance fee. This fee is usually a percentage of the total amount you withdraw as a cash advance. For example, the fee might be 3% to 5% of the transaction amount. It’s essential to review your credit card terms and conditions to understand the specific cash advance fee imposed by your issuer. Keep in mind that this fee adds to the overall cost of the cash advance and should be factored into your decision.
• Lack of Grace Period: Unlike regular credit card purchases that often come with a grace period (typically around 21-25 days) before interest begins to accrue, cash advances do not have a grace period. This means that interest charges on cash advances start accumulating immediately after the transaction is made. As a result, even if you pay off the cash advance balance in full by the due date of your credit card statement, you may still accrue a significant amount of interest for the time period between the withdrawal and the statement date.
• Impact on Credit Utilization: Cash advances can affect your credit utilization ratio, which is the percentage of your available credit that you are currently using. When you take out a cash advance, it increases your credit card balance and can potentially increase your credit utilization ratio. High credit utilization can negatively impact your credit score as lenders may view it as a sign of increased risk. Therefore, it’s important to consider how a cash advance may impact your overall credit utilization and creditworthiness.

What Are the Costs Associated with a Cash Advance?

• Interest Rate: One of the primary costs associated with a cash advance is the higher interest rate. Cash advances often carry significantly higher interest rates compared to regular credit card purchases. While the interest rate for regular purchases may range from, for example, 15% to 25% APR (Annual Percentage Rate), the interest rate for cash advances can be much higher, often exceeding 25% APR or even reaching 30% or more. This elevated interest rate means that borrowing through a cash advance can quickly accumulate interest charges, making it an expensive form of borrowing if not repaid promptly. It’s important to note that unlike regular credit card purchases that have a grace period, where you can avoid interest charges by paying the balance in full by the due date, cash advances do not typically have a grace period. Interest charges on cash advances often begin accruing immediately from the date of the transaction.
• Cash Advance Fee: In addition to the interest rate, credit card issuers typically charge a cash advance fee. This fee is usually a percentage of the total amount you withdraw as a cash advance. For example, the fee might be 3% to 5% of the transaction amount. The cash advance fee is applied upfront and is added to the overall balance of your credit card. It’s important to review your credit card terms and conditions to understand the specific cash advance fee imposed by your issuer. For example, if you were to withdraw $500 as a cash advance with a 5% cash advance fee, you would incur an additional $25 fee. This fee is separate from the interest charges and is deducted from the amount you receive as cash. Therefore, if you withdrew $500, you would receive $475 in cash, with $25 added to your credit card balance as the cash advance fee.
• ATM Fees: In addition to the cash advance fee and interest charges, using an ATM to withdraw cash as a cash advance may also incur ATM fees. These fees can be charged by the ATM operator or your credit card issuer. The ATM fees vary depending on the ATM and can range from a few dollars to a percentage of the amount withdrawn. It’s essential to be aware of any potential ATM fees associated with cash advances to factor them into the overall cost.

Cards That Offer No Cash Advance Transaction Fee

While many credit cards charge cash advance transaction fees, some cards offer the benefit of no cash advance transaction fees. Three notable examples are:

• First Tech Credit Union Platinum Rewards Mastercard®
• PenFed Platinum Rewards Visa Signature® Card
• DCU Visa® Platinum Rewards Credit Card

These cards provide cardholders with the opportunity to obtain cash advances without incurring any additional transaction fees. However, it’s essential to review the terms and conditions of these cards and understand any other associated costs, such as interest rates, before deciding to utilize this feature.

Alternatives to a Cash Advance on a Credit Card

If you’re hesitant about using a cash advance or want to explore alternative options, consider the following:

• Using a debit card to withdraw cash from an ATM: If you have a checking or savings account with a linked debit card, you can access your funds directly through an ATM withdrawal.
• Personal loans: Applying for a personal loan from a bank, credit union, or online lender can provide you with a lump sum of cash at a potentially lower interest rate compared to cash advances.
• Borrowing from friends or family: If possible, reaching out to friends or family members for a short-term loan can help you avoid fees and high interest rates.
• Negotiating payment plans: If your expense is a bill or debt, contacting the service provider or creditor to discuss payment plans or extended deadlines can offer relief without resorting to a cash advance.
• Emergency funds or savings: Utilizing an emergency fund or any savings you have accumulated can help cover unexpected expenses without incurring debt or fees.

FAQ

Are Cash Advances with a Credit Card a Bad Idea?

Cash advances can be a convenient option for obtaining quick cash, but they come with higher costs and fees compared to other borrowing methods. It’s generally recommended to use cash advances as a last resort due to their potential impact on your finances. Consider them only when you have exhausted all other options, and make sure to repay the advance promptly to minimize interest charges.

What Other Transactions Might Be Considered Cash Advances?

Apart from withdrawing cash from an ATM or requesting a cash advance from your credit card issuer, other transactions that might be considered cash advances include by your issuer for which you may be charged a cash advance fee and a potentially higher cash advance interest rate..

• Peer-to-peer (P2P) Money Transfers: Peer-to-peer money transfer services, such as PayPal, Venmo, and MoneyGram, allow you to send and receive money electronically. While these services are primarily used for convenient person-to-person payments, certain transactions may be treated as cash advances. For instance, if you use your credit card to fund a P2P transfer, it may be considered a cash advance, subject to the associated fees and interest rates.
• Using Your Credit Card to Pay Bills or Debts: If you use your credit card to make payments for bills or debts that do not typically accept credit cards, such as an auto loan or mortgage payment, it may be treated as a cash advance. Before utilizing your credit card for such payments, it’s important to check with the payment recipient to understand their policies and any potential cash advance implications.
• Wire Transfers: Wire transfers involve the electronic transfer of funds from one person or entity to another. In some cases, using your credit card for a wire transfer may be considered a cash advance. It’s advisable to confirm with your credit card issuer whether wire transfers are classified as cash advances and to understand any associated fees or interest rates.
• Traveler’s Checks: Traveler’s checks are prepaid checks that can be used as a form of payment while traveling. When purchasing traveler’s checks using a credit card, it’s essential to check whether the transaction is treated as a cash advance, which may result in fees and higher interest rates.
• Money Orders: Money orders are prepaid payment instruments that can be used as a secure method of transferring money. Similar to traveler’s checks, using a credit card to purchase money orders may be considered a cash advance, subject to the terms and conditions of your credit card.
• Foreign Currency Exchanges: When converting currency at foreign exchange bureaus or banks, using a credit card for the transaction may be treated as a cash advance. It’s advisable to inquire about the specific policies and potential fees associated with using a credit card for foreign currency exchanges.
• Lottery Tickets, Gaming Chips, and Wagers: Some credit card issuers may classify purchases of lottery tickets, gaming chips at casinos, or other forms of wagers as cash advances. These transactions typically incur cash advance fees and higher interest rates due to the perceived higher risk associated with such activities.

Does a Cash Advance Hurt Your Credit?

A cash advance itself does not directly impact your credit score. However, the way you handle the cash advance and the subsequent repayment can have implications. Utilizing a significant portion of your available credit limit for a cash advance can increase your credit utilization ratio, which may negatively impact your credit score. Additionally, if you fail to repay the cash advance on time, it can result in late payment marks on your credit report, further affecting your creditworthiness.

How Do I Pay Less for Credit Card Cash Advances?

To minimize the expenses associated with credit card cash advances, consider the following strategies:

• Repay the advance promptly: Pay off the cash advance balance as quickly as possible to minimize interest charges.
• Explore cards with lower interest rates: If you anticipate needing cash advances in the future, consider applying for a credit card with a lower interest rate specifically for this purpose.
• Look for cards with promotional offers: Some credit cards offer introductory periods with lower or zero-interest rates on cash advances. Take advantage of these offers but be mindful of any applicable fees.
• Plan your budget and expenses carefully: By having a comprehensive budget and emergency fund in place, you can minimize the need for cash advances and rely on other financial resources during unexpected situations.

Remember, it’s crucial to weigh the costs and benefits of a cash advance before making a decision. Carefully consider your financial situation, alternatives available to you, and the potential impact on your credit and overall debt. If possible, seek financial advice from a professional to determine the best course of action for your specific circumstances.