Credit card cash advances let you tap into your credit line to get cash when you need it, but it's important to understand the costs of a cash advance and to know how credit card cash advances work before you take one out.
What is a credit card cash advance?
A credit card cash advance is effectively a loan granted to you by your credit card issuer. If you have a credit card that allows cash advances, you can access cash in a few different ways:
Cash advances via an ATM
Getting a cash advance from an ATM requires your physical card, as well as a personal identification number (PIN) provided by your card issuer. You might also be subject to daily ATM withdrawal limits and fees similar to those imposed on checking accounts.
Cash advances via convenience check
Your credit card issuer may provide you with convenience checks linked to your card account. Like a normal check, convenience checks allow you to submit payments to a particular person or organization, which are charged against your credit account.
In-person cash advances
You might be able to use your card to take out cash advances in person at a branch. Remember to take identification with you, if this is something you can do.
What is the maximum you can withdraw through a credit card cash advance?
Cash advances are typically capped at a percentage of your card's credit limit. For example, if your credit limit is $15,000 and the card caps your cash advance limit at 30%, your maximum cash advance will be $4,500.
What are the costs associated with credit card cash advances?
Cash advances are an expensive way to access cash. Over and above the actual advance, which you will need to repay, cash advances come with the following charges:
- Fees. Cash advance fees can be substantial, where a typical fee is 5% of the cash advance. In addition, you are likely to pay several dollars in ATM fees if you take out a cash advance via ATM.
- Interest. You will typically pay a higher interest rate on advances than what your card charges for purchases. And unlike purchases, which allow a grace period before interest begins to accrue, cash advance interest starts to accrue as soon as the advance is granted.
Do cash advances on credit cards hurt your credit?
A cash advance that is promptly paid back shouldn't hurt your credit-although cash advances do count towards your credit utilization, or the amount of revolving credit you are using against your credit limits. Credit utilization is a major contributor to your FICO(R) credit score, making up 30% of the FICO(R) scoring model.
Cash advances can lower your credit score if you fail to pay back what you owe. Payment history is the single biggest component of the FICO model, representing 35% of a person's FICO(R) score.
How do I pay less for credit card cash advances?
Cash advance fees and interest rates aren't typically negotiable. But there are other ways to access cash that might be less expensive:
- Finding a credit card with better terms. Get the full picture on what different cards charge for cash advances by closely reading their terms and conditions. If you expect to take out cash advances in the future, consider finding a card with competitive cash advance fees and/or cash advance interest rate.
- Taking out a loan. Even unsecured personal loans will typically charge less in interest than credit card cash advances. If you can get a secured loan, the rate you pay may fall even further.
Credit card cash advances: get all the facts
Credit card cash advances can be a lifeline when you need cash, but be sure you understand the full cost of a cash advance before you take one out. Closely read your card issuer's terms and conditions to learn how your credit card cash advances work as well as what an advance will cost you, and consider whether less-expensive borrowing options might be right for you.