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Getting a cash advance on a credit card is a quick and easy way to solve short-term financial problems. However, cash advances are not always the best option.
A cash advance is a short-term loan taken against your card’s line of credit. While this may seem like an obvious choice when you need money quickly and have no other means, it is also an expensive type of debt that should be avoided whenever possible.
Here’s how cash advances work and what other options you can use to get funds quickly.
How to get a cash advance from a credit card
A cash advance allows you to receive cash from your credit card, just as you would from a debit card account.
If you have a credit card with a PIN, you can use the ATM to get cash just like you would with a debit card. You will most likely need to go to your bank or credit union and ask for a cash advance on your credit card. The representative will check your card (both the bank or credit union and credit card issuer may charge a fee) and then hand you the requested amount in cash.
Terms of cash withdrawal and commission
When you take a cash advance, you use the available balance on your credit card to take out a cash loan. This type of transaction is processed differently than your regular purchases and your credit card issuer will charge you a different interest rate.
Here are typical conditions and fees for cash advances on a credit card:
- The annual interest rate on cash advances is usually higher than the regular annual interest rate on a card.
- There is no grace period – interest on cash withdrawals is accrued immediately.
- A cash advance fee, either a percentage of the advance or a fixed dollar amount, is usually attached to and charged to your credit card account.
- Your bank or credit union may also charge fees and charges for credit card cash advances.
Credit card cash withdrawal terms and fees also vary by credit card issuer. Here are the terms and fees for popular cards from some of the leading issuers:
*That more
How much will the cash advance cost?
The main attraction of cash advances is convenience, but cash advances are expensive.
Let’s say you have a $2,500 credit limit, of which $1,000 has already been withdrawn from it, and you take a $700 cash advance. If you use the Capital One Quicksilver Rewards Card, you will immediately pay an additional $21 and 27.99% variable APR on that $721. With the Citi Custom Cash Card, you will pay 28.24% APR with a variable interest rate of $735 immediately.
How cash advance can affect your credit score
When it comes to credit reporting, a cash advance is treated the same as the rest of your credit card debt. This means it will not show up as a separate item on your credit file. However, it can still affect your credit.
“Giving cash can affect your account if you take too much money,” says Howard Dworkin, Chartered Accountant and Chairman of Debt.com. “The more cash you withdraw, the closer you get to your credit limit. Making the most of your line of credit or using more than 30 percent of your credit limit can hurt your credit score.”
Because interest and cash advance fees add up quickly, they can easily increase your credit utilization ratio, especially if your credit card limit is low.
“To protect your account… find out if your credit card company will increase your credit limit if you absolutely have to make a cash transaction,” Dvorkin suggests.
Pros and cons of cash withdrawal
pros
- No credit check. Since you already have access to a line of credit, no credit check is required for you to take out a cash advance.
- Lower interest rates than payday loans. If you’re in financial trouble and don’t have the credit to get a personal loan, the APR on cash advances is likely to be lower than on a payday loan.
- Immediate Remedies. Paying cash with a credit card will allow you to get the money you need in just one quick trip to the bank or ATM.
Minuses
- Immediate interest accrual. While regular purchases accrue APR at the end of each billing cycle, credit card interest accrues immediately.
- Increases the credit utilization rate. When you borrow cash against your credit limit, your credit utilization ratio increases, which can negatively impact your credit score.
- Higher APR than personal loans. Credit card cash advances have higher interest rates than a personal loan and the interest is charged immediately, so in the long run you will probably pay more with a cash advance than with a personal loan.
Understandably, the need for cash when you don’t have it can be a terrible feeling and put you under a lot of stress. In emergencies, it may seem important to receive funds immediately, regardless of the financial and credit implications.
Another option to consider is a consumer loan. The average rate on a 24-month personal loan is about 8.73 percent, which is much lower than the APR on a credit card. Even if your credit score is not in the best shape, it is likely that you will find a personal loan with a lower interest rate than a cash advance.
It is also convenient that you will be able to repay the loan over a period of time in fixed payments, instead of worrying about interest charges and lowering the loan utilization rate. In addition, you can receive a large amount, since cash withdrawals are often limited to a few hundred dollars.
bottom line
An urgent need for money can cause stress. Without an emergency fund or any savings, you may feel like you have little to no options. However, a cash advance should only be considered as a last resort.
If you have considered alternatives and come to the conclusion that you have no cost-effective options, be sure to calculate how much the cash advance will cost you and make a plan to pay it off as quickly as possible.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
