With all the easy payment methods around today—credit or debit card, Apple Pay®, “buy now, pay later” providers PayPal®, Affirm™ and more—there are still times when nothing but cold, hard cash will do. You may need an unplanned amount of cash to pay for a surprise taxi ride or a traffic ticket in a town that doesn’t accept credit cards.
When you must have cash but don’t have enough money in your checking account to make a withdrawal, a cash advance from a credit card is another option. However, it’s an option you should think long and hard about and avoid using for regular purchases because of the cost of a cash advance. You’ll want to be sure it’s really the best option available or save it for a last resort.
How Cash Advances Work
On the surface, a cash advance on a credit card is like a withdrawal with a debit card from a bank account. You use your card at an ATM and receive cash, but the similarities end there. With a debit card, you withdraw your own money and often won’t even pay a bank fee. With a credit card, you receive borrowed money, which becomes part of your credit card debt you must pay back.
Here are 3 ways a cash advance may be more costly than you realize:
- Most credit card issuers charge a cash advance fee every time you take a cash advance. It’s often around 2 to 5% of the transaction amount and may also have a flat minimum, such as $10.
- The interest rate charged by credit card companies on cash advances is typically higher than the rate for credit card purchases, even if you have good credit. The average cash advance APR (Annual Percentage Rate) is about 24.7%, according to WalletHub.
- There’s usually no grace period for repayment. For purchases, you may have 25 days (or another number of days) to pay off the balance before interest charges accrue. Interest starts accruing immediately on most cash advances.
Most card issuers charge fees on cash advances. Depending on who issues your card, cash advance fees are determined using one of the following:
- A flat rate transaction fee
- A percentage of the advance amount—usually between 2 and 5%
- A mix of the first two. Many financial institutions charge either a minimum flat rate or a percent of the amount withdrawn—whichever is higher.
|Instant access to cash for cardholders
|Usually no grace period—interest begins accruing immediately
|Convenient—as close as your nearest ATM
|Typically higher interest rate than for purchases
|Access to available credit without an additional loan application or credit check
|Generally, there’s a cash advance fee (on top of any ATM fees)
|Easy way to get local currency in a foreign country
|Cap for cash advances may be well below your credit limit
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This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.