What Is a Credit Card Cash Advance?

If you need cash fast, a credit card cash advance could be the answer, but that doesn’t mean it’s a good idea.

Sure, credit card cash advances are convenient (at least up-front) and quick, but the costs are hefty: you’ll have to pay an extra-high interest rate along with the creditor’s transaction fee.

That’s why most major creditors say you should avoid credit card cash advances, unless you’re in an emergency. So, if you’re thinking about a cash advance from your credit card, consider some of the options below instead.

How Does a Credit Card Cash Advance Work?

A credit card cash advance is a loan against your credit card balance. You can take out a credit card cash advance by withdrawing a lump sum from your credit card account at your bank or an ATM.

While this may seem a lot like using a debit card, it couldn’t be more different. Unlike debit card purchases and even credit card purchases, credit card cash advances are high interest loans — ranging up to 36% APR or more — with hefty cash advance fees.

What is a cash advance fee on a credit card? It’s a fee from the creditor, usually charged as a set percentage (roughly 5%-10%) of your advance amount.

Here’s what to consider — fees and all — before taking out a credit card cash advance:

Pros

• Convenient access to cash.
• Money for purchases that can’t be made via credit card.

Cons

• No grace period (interest accrues from day one).
• Higher APRs than credit card interest rates and most other financing.
• Transaction fees as high as 10%.
• Potential ATM fees.
• Increases your credit card balance.
• Advances are not eligible for credit card rewards.
• Maximum advance is roughly 30% of your credit limit, minus fees.

It’s important to note that some credit card transactions are also processed the same way as cash advances. Those transactions include money orders, wire transfers, cryptocurrency, and online gambling.

The Costs of a Cash Advance

Don’t let the allure of quick cash tempt you to ignore the real cost of a credit card cash advance.

With a credit card cash advance, you’ll be taking out a pricey loan, especially when compared to other forms of borrowing. If you take an advance of $1,000, with an advance fee of just 5%, you’ll pay a $50 fee up-front, plus interest charges that accrue starting day one.

Paying off a Credit Card Cash Advance

If you do take out a credit card cash advance, you’ll want to pay it off as quickly as possible. That’s because, unlike credit cards and other loans, there’s no grace period for your payment.

Typically, the grace period for credit cards is 21 days or more. During that time, you don’t accrue interest charges if you’re not carrying a balance. But with a credit card cash advance, you start racking up interest on day one.

You should also note that if you pay more than the minimum due on your card, the overpayment will go toward paying off your cash advance balance and not your regular account balance.

What Is the Maximum Cash Advance Limit You Can Withdraw on a Credit Card?

With most creditors, the credit card cash advance limit is usually 30% of your total credit card limit, not including fees. Even if your credit card balance is $0, you can’t take an advance for the full amount of credit on the card.

In other words, if you had a credit limit of $10,000, and your creditor charged a 5% advance fee, the maximum amount you could borrow would be just under $2860.

Credit Card Cash Advance Alternatives

As a rule of thumb, the faster you want your cash, the more you’ll have to pay for it. But that doesn’t mean costly credit card cash advances are the only way to get money. If you’re looking for quick emergency cash, consider these alternatives:

Personal Loans

Personal loans can be used for any purpose and they’re available through most credit unions and banks. The loan amount and loan terms you qualify for will depend on factors like your credit scores and income, but interest rates should be much lower on personal loans than on credit card cash advances.

If you’re looking for a small loan with flexible credit requirements, you might try a Payday Alternative Loan (PAL) from your credit union.

Cash Advance Apps

A cash advance app is a service that gives you early access to your paycheck. You pay the money back via an automatic debit from your bank account, or from your account within the cash app, on your next payday.

Unlike a cash advance from your credit card, advances from these apps are not technically loans, but they can still be difficult to pay back.

Many cash advance apps don’t charge fees, however you may have the option to pay for a rushed advance and you may be able to leave a tip. Just note that a $5 tip on a $200 advance that’s paid back in just two weeks, is the equivalent of 65.18% APR.

Borrowing From Friends and Family

Not everyone has friends or family that can offer them money. If you’re someone who does, it might be worth the discomfort of asking for help.

Instead of just casually asking to borrow from friends or family, consider scheduling an intentional conversation where you present your request and discuss loan terms. For example, you might offer to draw up a simple contract that includes your payment due dates and amounts.

Overdrawing From Your Checking Account

Overdrawing on a checking account isn’t ideal, but it might be cheaper than using a credit card cash advance.

If your bank allows you to overdraft, look into the fees and penalties before proceeding. Most banks charge around $35 per overdraft transaction, but you may have overdraft protection that prevents you from incurring fees. There can also be a limit on the amount you’re allowed to overdraw.

Even if you go this route, you’ll still want to avoid overdrawing repeatedly. Unpaid overdraft fees and non-sufficient funds (NSF) can lead to account closures on your Chexsystems report, which may make it difficult to open up another bank account in the future.

Speak to a Credit Counselor Before Borrowing More Money

When it comes to credit card cash advances, the bottom line is that there are better ways to get cash. Whether it’s by borrowing money from family, taking out a loan or even over drafting on a bank account, there are ways to get money without paying ultra-high APR and fees.

If you’re not sure which option is best, talking to a credit counselor could be the first step. A certified credit counselor can help you explore all of the available solutions, based on your credit and income situation. Plus, they can provide expert advice on how to improve your finances in the long run.