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What is a credit Card Cash Advance?
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What is a credit Card Cash Advance?
A cash advance is a short-term cash loan -- an expensive one -that is secured against the credit limit on the credit card.
By Lindsay Konsko
Updated Aug 9 2021
Editor: Paul Soucy Lead Assigning Editor Credit scoring, credit cards Personal financial matters Paul Soucy has led the Credit Cards content team at NerdWallet since the year 2015. He served as an editor for USA Today, The Des Moines Register and the Meredith/Better Homes and Gardens family of magazines for over 20 years. He also established a profitable freelance editing and writing business that focuses on business and personal finance. He was editor of USA Today Weekly International Edition for six years, and was awarded the most prestigious distinction by ACES: The Society for Editing. He holds a bachelor's in journalism, as well as a Master of Business Administration. His home is in Des Moines, Iowa, with his wife, two sons, as well as the dog named Sam.
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Cash advances permit you to utilize your credit card for an instant cash loan at a bank or ATM. Unlike a cash withdrawal from your bank account, a cash advance must be repaid -- as with any other transaction you put on the credit card. Consider it as the use of credit cards to "buy" cash rather than items or services.
It's convenient, but it's quite expensive.
Are you in need of cash fast? Consider:
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What is the process of a cash advance?
If you use only credit cards to pay for everyday expenses it is possible to find yourself in a pinch when faced with a cash-only purchase like buying lunch from a street stall or vegetables at a farmer's market or lunch at a mom-and-pop deli. In that case the cash advance option could seem appealing. Some people also turn to credit card cash advances when they require cash but don't have enough in the bank account.
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In the event that your card comes with PIN numbers, you can receive cash advances at an ATM. In other cases, you can take your card to a financial institution that can provide advances through the payment network of your card like Mastercard or Visa. You'll need ID.
Be aware that the majority of credit card companies don't permit you to take your whole credit line in the form of an advance. For the majority of people, cash advances are capped at a couple hundred dollars. This means you cannot depend on credit cards to provide you with very much cash in the situation of an emergency.
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The reason cash advances are costly
Getting a cash advance is easy, but it's one the costliest methods to receive some cash. This is because cash advances come with several costs:
Cash advance charges. They are set by the issuer of your card. Certain cards charge a flat amount per cash advance, for example, the amount is $5, or even $10. Other cards charge a percentage of the amount advanced -- often up to five percent. It's sometimes a percentage with an amount that is minimum in dollars- such as 10% or 3 or $10, whichever is higher.
Bank or ATM fees. These are imposed on the bank handling the transaction -- which is the owner of the ATM or the bank from which you get your cash advance.
Interest. This can be costly in two ways. First, the interest rate that credit cards charge on cash advances is usually much higher than the rate that is charged for purchases. Second, interest on cash advances usually starts growing in a matter of minutes. There's no like you can earn with purchase.
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Due to the high costs of the cash advance option and the high cost of cash, you could be in financial crisis when you're considering one if there's not enough money on the bank account. Cash advances should only be used only in extreme emergencies. If you find yourself using them regularly then it's time to make some changes or seek assistance, for instance by a professional.
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Cash advances are not the only option.
If you're having a cash shortage and aren't sure where to turn, consider the alternatives below. They're not all ideal, but they could result in a lower cost than cash advances in the long run:
The personal loan. This can be costly if your credit isn't great however, the interest rates and terms will still be more favorable than a cash advance. ( )
Offers from your credit card's issuer. Recently, there were a variety of options have been offered, which include the ability to essentially turn your available credit in to an installment loan without requiring a new loan application. There will be interest charges for this feature, but potentially at a fairly reasonable cost.
Borrowing money from family or friends. It might be uncomfortable but the savings will be worth it.
The bank account you are using to withdraw funds. Instead of taking a cash advance at an ATM think about overdrawing your checking account with your debit card. You'll face a fee but you don't need to worry about paying interest.
In summary In the end, taking cash advances with your credit card means taking on a very expensive short-term loan. This is rarely a good idea take into consideration all possible options before using a cash advance.
What's next?
About the author: Lindsay Konsko is a former staff writer covering credit cards and consumer credit for NerdWallet.
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