A cash advance lets credit cardholders borrow money quickly, typically by withdrawing cash at an ATM or bank teller using their credit card. Unlike normal purchases, cash advances often come with significant fees and interest that starts accruing immediately.
How Cash Advances Work
When you take a cash advance, your credit card issuer lends you money up to a predefined limit within your available credit balance. You can obtain the cash from an ATM, bank, or sometimes through convenience checks provided by your credit card company.
Fees and Interest
Most credit cards charge a cash advance fee, typically 3% to 5% of the amount withdrawn, with a minimum fee (commonly $10). Additionally, interest rates on cash advances are usually higher than purchase rates, often around 20% to 30% APR. Crucially, unlike regular credit card purchases, interest begins accruing from the day of the cash advance without a grace period.
Why Are Cash Advances Expensive?
The combination of upfront fees and immediate interest makes cash advances one of the most costly ways to borrow money. The lack of a grace period requires repayment sooner, increasing the overall cost.
When Do People Use Cash Advances?
People often turn to cash advances for emergencies, like unexpected medical bills or urgent expenses when no other source of cash is available. While convenient, their high cost makes them a last resort.
Alternatives to Cash Advances
Before taking a cash advance, consider alternatives such as:
- Personal loans, which may offer lower interest rates.
- Borrowing from friends or family.
- Using a credit card for purchases instead of cash.
- Applying for a paycheck advance through your employer.
Important Considerations
- Cash advances count toward your credit card balance and can affect your credit utilization ratio, potentially impacting your credit score.
- Repaying cash advances quickly can reduce the amount of interest paid.
- Always review your credit card terms and disclosures, as regulations and fees vary by issuer.
For official guidance, the IRS or Consumer Financial Protection Bureau websites provide resources on responsible credit use and borrowing. Check your credit card agreement for specific cash advance policies and fees. Understanding these factors helps avoid unnecessary costs and improves financial planning.