There may be situations where you need cash in an emergency. If you don't have cash on hand or in the bank for this urgent situation, you might consider using a credit card to get a cash advance. Here is what you should consider when using a cash advance.
What is a Cash Advance?
A cash advance is a withdrawal of cash directly from your credit card. They are loans that draw from your available credit instead of creating a new line of credit.
Many credit card issuers use a separate cash advance limit as part of your overall credit limit, such as a $10,000 credit limit with $2,000 of that limit available for cash advances. A daily limit is often imposed, usually a few hundred dollars. These limits are available on your credit card statements and they may also be listed on the back of your card or learned through online banking or mobile banking apps. You can call the phone number on the back of your card as well.
What Are the Fees for a Credit Card Cash Advance?
Cash advances have a transaction fee, usually 3-5% of the advance amount. Some credit cards have a minimum transaction fee, such as the greater of that percentage or $10. So, if you need $200 in cash right away and opt for a credit card cash advance, and your card charges 5%, you have a $10 cash advance fee.
The interest rate (known as APR – annual percentage rate) for cash advances can be higher than the interest rate for purchases. Many credit card issuers also do not have a grace period for cash advances; meaning interest accrues as soon as you take out the cash advance.
How to Reduce Cash Advance Fees
Generally, the more cash you withdraw with a cash advance, the higher the fees can be. One way to reduce the fees associated with credit card advances is to take out as little cash as possible for an emergency.
Use a credit card cash advance for the absolute minimum amount that you need. If you have cash available from other sources, try to use that first.
If you have more than one credit card open and still want to pursue a cash advance, check the cash advance fees and policies on each card. It's often best to opt for the card offering the lowest transaction fees and APR.
How Do You Get a Cash Advance?
Many people use an ATM to get a cash advance. You only need to insert your credit card and enter the PIN. If you don’t remember the PIN or never set one, you may be able to do so from your online account or by calling the number on your card. Then choose “cash advance” on the ATM screen. The ATM may also charge you withdrawal fees if it belongs to a financial institution that’s not part of your card issuer’s network.
Depending on your financial institution and card issuer policies, you may also get a credit card cash advance in person. If you go to a financial institution, be sure to bring your credit card and a valid form of identification, as it may be required. There may also be total and daily limits that apply to cash advances.
Some card issuers may allow you to arrange a cash advance over the phone. It would work similarly to getting a cash advance at a physical branch, except the financial institution transfers your cash advance amount to another account you have at that financial institution (for example, a checking account). You can check with the card issuer to learn if this is an option.
Paying Back a Cash Advance
Because interest starts accruing right away, it’s recommended that you pay off your cash advance before any other types of debt as soon as possible. Under the Credit CARD Act of 2009, any payments you make on your credit card that exceed the minimum payment will be applied to the balance with the highest interest rate first (which is virtually always the cash advance, as it will be a few percentage points higher than the interest rate for purchases)[1].
Does a Cash Advance Hurt Your Credit Score?
The act of taking out a cash advance doesn’t hurt your credit score. Cash advances aren’t listed on your credit report differently than revolving debt accounts you may currently have open.
However, cash advances can negatively affect your credit score if they use up too much of your available credit or you fall delinquent on your card payments, just like any other type of short-term or revolving debt.
Are Cash Advances Worth It?
Cash advances carry high interest rates and transaction fees. While not as steep as a payday loan, credit card cash advances are still an expensive way to borrow money for short-term needs.
If you don’t have enough cash on hand, it may be wiser to pay for any sudden expenses with your credit card if you have the available credit and cards are accepted. By using your credit card, even if there are associated transaction fees, you may have a grace period before interest accrues, likely at a lower rate.
Alternatives to a Credit Card Cash Advance
Sometimes, there are emergencies requiring you to have cash on hand. The urgency can cause a cardholder to consider taking out a cash advance. Since a cash advance is a costly method of obtaining emergency cash, it's prudent to consider alternatives such as:
- Withdrawing from savings where the penalty may be smaller than the cash advance fee, such as certificates of deposit (CDs)
- Liquidate investments such as stocks and mutual funds
- Borrowing against major assets such as a 401(k) or home equity
- Personal loans
- Peer-to-peer lending
- Using your credit card's purchasing function instead, if possible
We recommend considering these alternatives first before taking out a cash advance, but acknowledge every financial situation and needs are different.
