What is a Credit Card Cash Advance and How Does It Work?
You can use your credit card to obtain a cash advance at a bank, ATM or other financial institution. A cash advance must be repaid, just like any other credit card purchase. It’s like using your credit card instead of goods and services to “buy” cash.
It’s convenient, but it’s quite expensive.
How does a cash advance work?
You don’t need credit cards to pay for your daily spending. This could leave you in a tight spot if you are faced with cash-only situations, such as when you have to buy food from a street vendor or vegetables at a farmers market. A cash advanced to your account might be a good option in such cases. When they have insufficient cash in their bank accounts, some people turn to credit cards for cash advances.
Cash advances can be obtained directly at an ATM if your credit card comes with a PIN. You can also take your card to any bank that offers cash advances via your card’s payment network such as Mastercard and Visa. You will need to present ID.
Most credit card companies won’t allow you take your entire credit line as a cash advance. Cash advances can only be used for a few hundred dollars by most people. This means you cannot rely on your credit cards to give you cash in an emergency.
Cash advances can be expensive
Although it is simple to obtain a cash advance, it can be one of the most expensive ways to get cash. Cash advances can be costly.
- Cash advance fees. These fees are imposed on you by your card issuer. Some cards charge a flat fee for cash advances, such as $5 or $10. Some cards charge a flat fee for cash advances, such as $5 or $10. Others charge a percentage of the amount advanced, often as high as 5%. It may be a percentage charged with a minimum dollar amount, such as 3% or $10.
- Bank fees or ATM fees. These fees are imposed by the financial institution handling the transaction, the owner of the ATM/bank where you receive your advance.
- Interest. These can be expensive in two ways. The interest rate a credit card charges for cash advances is usually much higher than that charged for purchases. Cash advances interest usually accrues immediately. You cannot get a grace period with purchases.
Due to the high costs of cash advances, you might find yourself in financial trouble if you don’t have enough money. Cash advances should only be used in the most dire situations. You should not rely on cash advances if you are in extreme need.
Alternatives to Cash Advances
Consider the following options if you find yourself in a cash crunch. While they may not be the best options, they can end up being cheaper than a cash advance over time.
- A personal loan. Although this will cost more if you have poor credit, the terms and interest charges will still be better than cash advances. Learn more about personal loans.
- Offers from the card issuer. Credit card issuers now offer cheaper ways to tap into credit lines, such as the ability to convert your existing credit into an installment loan, without you having to apply for a loan. Although you will still be charged interest for this feature, it may be at a very reasonable rate.
- Borrowing money From friends and family. Although this may seem awkward, the savings will be well worth it.
- You have overdrawn your checking account. Instead, take a cash advance from an ATM. Use your debit card to withdraw your checking account. While you will be charged a fee, there is no interest.
A cash advance is essentially a short-term loan that you take out on your credit card. It is almost never a good idea to take out a cash advance on your credit card. Instead, consider other options.