Credit cards offer a convenient way to make purchases and earn rewards, But did you know you can also use them to get cash? This process is known as a cash advance Here’s what you need to know about how it works and the pros and cons
What is a Credit Card Cash Advance?
A credit card cash advance allows you to withdraw cash against your available credit limit Essentially, you are taking out a small loan from your credit card issuer The amount you withdraw will be added to your credit card balance.
There are a few different ways to get a cash advance from your credit card:
- Withdrawing cash from an ATM using your credit card
- Visiting a bank teller and making a withdrawal from your credit card
- Using convenience checks associated with your credit card account
- Transferring funds to accounts on payment apps or digital wallets
- Purchasing money orders, traveler’s checks, lottery tickets, casino chips, etc.
So anytime you use your credit card to get cash or cash equivalents, it is considered a cash advance.
Cash Advance Limits
Most credit cards have a separate, lower limit for cash advances, usually a percentage of your total credit limit. This cash advance limit will determine how much you can withdraw as a cash advance.
For example, if your total credit limit is $10,000, your card issuer may set a 25% cash advance limit. That means the maximum you could withdraw as a cash advance would be $2,500.
Check your cardmember agreement or account statements to find your cash advance limit.
Pros of Credit Card Cash Advances
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Quick access to cash – If you have an urgent need for cash, a credit card cash advance can provide funds more quickly than alternatives like personal loans or borrowing from friends/family.
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Available credit – If you don’t have available funds in your bank account or savings, a cash advance leverages your existing credit card limit.
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Convenience – Withdrawing cash from an ATM is often more convenient than visiting a bank branch or finding other sources of funds.
Cons of Credit Card Cash Advances
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High interest rates – Cash advance APRs are almost always much higher than rates charged on purchases, commonly 20% or more. And interest starts accruing immediately, with no grace period.
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Fees – Most cards charge fees for cash advances, either a flat fee or percentage of the amount advanced. ATM fees may also apply.
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Credit impact – Cash advances increase your credit utilization, which can negatively affect your credit scores.
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Repayment terms – Cash advance balances usually have different minimum payment requirements than purchase balances. This can make them costlier and harder to pay off.
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Alternative lending costs – Other borrowing options like personal loans or lines of credit may offer lower rates than credit card cash advances.
Tips for Minimizing Cash Advance Costs
If you do need to take a credit card cash advance, here are some tips to minimize fees and interest charges:
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Withdraw only what you absolutely need in cash to avoid paying fees/interest on unnecessary amounts.
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Compare fee structures and interest rates across your different credit cards to pick the cheapest option.
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Pay off the balance as quickly as possible, ideally within the same billing cycle. The longer it remains unpaid, the more interest accrues.
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Ask your card issuer if they offer lower promotional cash advance rates or can waive fees under special circumstances.
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Consider transferring the balance to a 0% APR card to avoid interest, but note balance transfer fees may apply.
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Set up automatic payments to help ensure you pay off the balance rather than just making minimum payments.
Alternatives to Credit Card Cash Advances
Depending on your situation, you may want to explore some alternatives before taking a costly cash advance against your credit card:
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Personal loans – Unsecured personal loans or lines of credit often offer lower interest rates than credit cards.
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401k loan – If allowed by your plan, you can borrow against your 401k balance and pay yourself back with interest.
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Emergency fund – Savings specifically earmarked for emergencies provide cash without borrowing costs.
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Asking for help – Borrowing from family/friends or asking for an advance on your paycheck may provide cash without fees or interest.
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Using a debit card – ATM withdrawals from a checking account avoid credit card fees and interest, with possibly lower ATM fees.
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Credit union loans – Many credit unions offer payday alternative loans at lower rates and flexible terms.
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Cash advance apps – Apps like Earnin and Dave provide cash advances against future paychecks for tips or monthly fees.
The bottom line is cash advances should be thought of as short-term, expensive financing options of last resort. Alternatives like personal loans or dipping into your emergency savings can often provide the cash you need at a lower overall cost. But in a true emergency, cash advances can be a useful feature of credit cards when used carefully.
Know your cash advance limit and available credit for cash advances:
Look at your most recent credit card statement and find your Cash Advance Limit. Keep in mind, sometimes ATMs have additional limits. You also must have sufficient total credit line available to take a cash advance. For example, if you have used all of your available credit for purchases, you cannot take a cash advance, even if you have not used all of your cash advance line.
What is a cash advance?
A cash advance is when you use your credit card to obtain cash, such as from an ATM or bank branch. But there are others types of transactions that are also considered cash advances, such as using your credit card to: transfer money to friends using apps like PayPal, Venmo or Moneygram, pay a debt (such as a car loan) using a third-party bill pay service, buy casino chips or lottery tickets, or exchange dollars for foreign currency.
Cash advances usually include transaction fees and a higher APR than credit card purchases. With each cash advance, we charge a front-end fee, or service charge, that posts to your account the day of the transaction. Be sure to review your account terms for details. Things work a little differently when it comes to how payments are applied to cash advances. Check out your account terms so youll know what to expect.
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FAQ
What happens if you withdraw cash from a credit card?
… they can harm your credit score if the amount you withdraw causes the percentage of available credit you’re using, also known as your credit utilization …
How much cash can I pull from a credit card?
What is the maximum cash advance limit you can withdraw from a credit card? Cash advances are typically capped at a percentage of your card’s credit limit. For example, if your credit limit is $15,000 and the card caps your cash advance limit at 30%, your maximum cash advance will be $4,500.
Can I withdraw money from my credit card?
How do I know if I can withdraw money from my credit card?
Look at your most recent credit card statement and find your Cash Advance Limit. Keep in mind, sometimes ATMs have additional limits. You also must have sufficient total credit line available to take a cash advance.