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Credit Card Cash Advance Basics

Last updated on May 20th, 2021

We’ve all encountered that awkward moment where we’re in front of a street food vendor or a parking attendant, and we don’t have any cash on us. Mobile point-of-sale systems and apps like Venmo and forth have skyrocketed in popularity recently, but there still are plenty of instances where nobody wants to be caught without having cold, hard cash on them. The tempting thing to do may be to take your newly acquired travel rewards credit card to an ATM and make a cash advance to withdraw what you need so you can pay for your hot dog or parking spot, but there is a good chance the costs will outweigh the benefits. Here are some cash advance basics you need to know:

What Is a Cash Advance?

A cash advance is a type of financing, where you withdraw physical cash against your credit card balance to pay for a good or service that cannot be paid for directly with a credit card. Taking out a cash advance against your credit card balance is very different from using a debit card at an ATM.

Some cardholders may not know this but using a credit card to borrow cash to pay for something is more expensive than using a credit card to outright buy an item because of the extra transaction fees. Credit card companies treat cash advances differently than regular purchases, and they structure their interest rates differently with cash advances having much higher rates.

Cash Advance Basics: How Do Cash Advances Work?

Most banks and credit card issuers have three ways to make a cash advance. These are:

  • At an ATM
  • In-person at a bank branch
  • Through cash advance convenience checks

At an ATM

The most common form of cash advance is through an ATM. Conducting an advance through an automated teller machine requires contacting customer service ahead of time. Cash advances through an ATM require a PIN code. By calling the customer service phone number on the back of the credit card, you can set up a PIN and make future advances much simpler.

Once you have your PIN, conducting a cash advance at an ATM is the same as using your debit card. However, keep in mind that you can only borrow up to your cash advance limit and that the bank may limit the amount of money you can withdraw per day.

In Branch

Getting an advance at a local bank branch is another common way to conduct a cash advance. To make a cash advance at branch, you’ll need a photo ID and the credit card on hand.

Convenience Checks

Convenience checks are a third way to make a cash advance. This form of advance is less common, but some banks still mail these checks to customers. A convenience check is like a check from a checking account – just tied to the credit card account. Writing a check is also similar – you add the payee’s name and the transaction amount. However, you simply make the name on the check “cash” and cash it in a branch for a cash advance.

Related Article: How to Request a Cash Advance

Cash Advance Basics: Are Advances Worth It?

A cash advance might seem like the perfect way to grab some cash when your wallet is looking a little thin, but there are some serious drawbacks to considering taking one out. Here are some of the potential drawbacks on making a cash advance:

  • Increased Interest Rates: Compared to purchase and balance transfer rates, cash advances feature a high interest rate that have been known to top out near 27%. If the cash advance isn’t paid off immediately more interest can accrue over time, making that cash advance much more expensive as time passes.
  • Cash Advance Fee: Credit cards that offer cash advances charge a fee in the form of a fixed dollar amount or percentage of the transfer. They’ll usually charge either $5 or 3% of the amount of the cash advance, whichever is greater.
  • No Grace Period: Purchases made with a credit card typically have a 21 to 25-day grace period where cardholders have the chance to pay their full balance without accruing interest, but with cash advances, the balance immediately begins collecting interest.
  • No Introductory Rate Offers: Many credit cards offer special introductory rates such as 0% intro APR for up to 18 months on purchases and balance transfers, but they don’t do the same for advances.
  • ATM Withdrawal Fees: In addition to high interest and a fee, cardholders also must pay an ATM withdrawal fee to borrow cash. The credit card issuer may also issue an ATM fee.
  • Payment Allocation Rules: Cardholders who make the minimum payment will have it applied to the balance with the highest interest rate, but if the payment is above the minimum the credit card issuers can apply it to the lowest rate balance. This means it will take longer to pay off the balance.
  • Potentially Small Cash Advance Limit: Card issuers usually don’t allow cardholders to borrow against their entire credit limit. Instead, banks allow only part of the total amount of credit as available for advances, meaning it might not be worth the additional costs to take an advance as a form of short term loan.

What Are Some Alternatives To A Cash Advance?

Here are some potential alternatives to a cash advance is the high fees and immediate interest charges put you off:

  • Use Your Debit Card: Using your debit card at any ATM is a much better idea because even if you must pay an ATM withdrawal fee, you’ll save money on the Cash Advance Fee and the higher interest.
  • Borrow Cash: Find a friend or family member willing to lend you cash for your hot dog or parking spot, and offer to pay them back with a cash transfer app.
  • Take Out a Personal Loan: If you need to take out a more substantial amount of cash, consider looking into a personal loan with a friendlier interest rate. It’ll also give you more of a financial cushion to avoid needing to borrow more money.
  • Take Out a Small Business Loan: Individuals aren’t the only ones that consider cash advances. Many businesses use cash advances to let their employees access cash quickly during trips, or provide cash flow for quick deals. Small business owners who need more substantial amounts of available cash could consider a bank loan instead of a cash advance, as it may provide more liquidity than the line of credit the card issuer provides for cash advances.
  • Overdraw Your Bank Account: While not advisable, if payday is in sight, and you need some money to get you through a few days consider overdrawing your checking account. You’ll have to pay an overdraft penalty, but it’ll be substantially less expensive than paying a fee or interest, an ATM withdrawal fee, and a possible ATM fee from the issuer.

How Does an Advance Affect My Credit Score?

One last cash advance basic. Using a credit card to take out a cash advance doesn’t directly affect your credit score, but there are ways in which it can have indirect consequences. The higher interest rates associated with credit card cash advances only make it more difficult for cardholders to pay off their balance in full and get out of credit card debt if they’re having trouble financially. If they default on their credit card payments or fall behind on payments it will have a negative impact on their credit score. The only way for cardholders to have their credit scores not be negatively affected by taking out a cash advance is to immediately pay it back.

Related Article: Credit Cards 101

Featured photo by  Matthew Henry/ Burst
About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident credit expert, covering all facets of the credit card space. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.