Picture this: you’re in a situation where you need cash in your hand, not just credit. Maybe your rent is due, or you owe a friend a substantial sum of money. Borrowing money from your credit card seems like an easy solution. But before you proceed, it’s important to understand what a cash advance is and the costs associated with it.
A cash advance is a service provided by credit card issuers that lets you borrow cash against your credit card’s limit. It might seem convenient, but credit card cash advances typically come with substantial fees and higher interest rates than credit card purchases.
How to Get a Cash Advance from a Credit Card
When you’re in a financial bind, getting a cash advance from your credit card can provide a temporary solution. Here are the most common methods for obtaining a cash advance:
At an ATM
Much like using a debit card, you can withdraw cash from an ATM using your credit card. This is a straightforward process similar to checking your bank account or withdrawing money with a debit card, with a few key differences. Here’s how to take out a cash advance from an ATM in three easy steps.
- Know your PIN: To use an ATM for a cash advance, you’ll need a credit card PIN. If you don’t have one, you can request it from your credit card issuer. Bear in mind, it may take a few days to receive a new PIN, and it might not be an immediate solution if you’re in urgent need.
- Understand your cash advance limit: It’s crucial to remember that your cash advance limit is not the same as your credit limit. You’ll need to check with your credit card issuer to know how much cash you can withdraw.
- Follow the ATM instructions: Once you have your credit card PIN and know your cash advance limit, you can go to the ATM, insert your credit card, and choose the “Credit” option. Enter your PIN when prompted, select the “Cash Advance” option, and enter the amount of cash you want to withdraw.
From a Bank Teller
If you don’t have a credit card PIN or prefer not to use an ATM, another method to receive a cash advance is through a bank teller at a bank branch.
- Visit a participating bank or credit union: Not all financial institutions will allow a credit card cash advance, so you’ll need to find one that does. It doesn’t necessarily have to be your bank, as long as the bank allows credit card cash advances.
- Request a cash advance: Go to the teller and ask for a cash advance for the amount you need. Remember to bring a government-issued ID (like a driver’s license or a passport), as the teller will likely ask for identification to verify that you are the cardholder.
- Sign the receipt: Once the teller has processed the transaction, they’ll ask you to sign a receipt acknowledging the cash advance. Be sure to keep this receipt for your records.
Cash Advance Checks
Some credit card issuers provide cash advance checks (also known as convenience checks) to their cardholders. These checks can be used to borrow money against your credit card account directly, similar to how a regular check would draw money from your checking account.
- Understand how these checks work: These checks are linked directly to your credit card account. When you write a check, the amount is added to your credit card balance as a cash advance.
- Deposit or cash the check: You can deposit the check into your bank account or cash it at a bank branch. Note that if you’re depositing the check, it might take a few days for the funds to become available in your account.
- Watch out for fees and interest: Just like a regular cash advance, cash advance checks come with fees and will accrue interest from the day you use the check.
Remember, while getting a cash advance from your credit card can be straightforward, try to use it only as a last resort due to the high costs and potential impact on your credit score.
Limitations of Cash Advances
Just because you can take a cash advance doesn’t mean you can withdraw money equal to your entire credit limit. Cash advance limits are typically a percentage of a cardholder’s total credit limit.
Furthermore, cash advances will reduce your available credit. So, if you have a $2,000 limit and take out a $500 cash advance, your available credit would only be $1,500.
It’s also crucial to understand that with cash advances, interest begins accruing as soon as the cash advance transaction occurs. There’s no grace period like there is with credit card purchases.
Cash Advance Fees and Interest
Getting cash from a credit card isn’t cheap. Cash advances come with cash advance fees, usually a flat fee or a percentage of the cash advance amount, whichever is greater. Additionally, the interest rate—or cash advance APR—is typically higher than for purchases. Read the terms and conditions on your credit card statement to find out your interest rate for cash advances.
Your credit card issuer charges interest daily, starting from the day of your cash advance withdrawal until you repay the amount in full. So, the cost of borrowing money this way can add up quickly.
How Cash Advances Impact Your Credit Score
Cash advances could impact your credit scores in several ways. First, they increase your credit card balance, which in turn increases your credit utilization ratio (the percentage of available credit you’re using). High credit utilization can negatively impact your credit scores.
Also, if the added burden of cash advance fees and higher interest rates makes it harder for you to make your payments on time, late or missed payments will show up on your credit report. This can also damage your credit scores, as your payment history is the biggest factor in calculating these scores.
Alternatives to Cash Advances
Although credit card cash advances can be convenient when you’re in a financial pinch, the high costs associated with them make it worth considering other options first:
If you have funds in your checking account, using your debit card is a more cost-effective method to access cash. Instead of borrowing against your credit limit and accruing interest as you would with a credit card cash advance, a debit card allows you to withdraw money you already have without incurring additional costs. Just keep an eye out for potential ATM fees if you’re not using one of your bank’s ATMs.
Payment Apps or Cash App
In our digital age, numerous payment apps, such as Venmo, Zelle, or Cash App, make it simple to transfer funds directly to someone else or even another one of your own bank accounts. Transferring funds electronically allows you to bypass the need for physical cash, which can save you from the high fees of a cash advance. Remember to link these apps to your bank account or debit card instead of your credit card to avoid fees.
You can also borrow up to $200 through Cash App, with a low interest rate of 5% and up to four weeks to pay it back. To do so, simply visit the “Banking” section, click “Borrow,” and then “Unlock” to see how much you are qualified to borrow. Select the loan amount and repayment terms and the money will be transferred directly to your Cash App account.
Paycheck Advances through Online Banking Apps
Banking apps and fin-techs like Chime, Dave and Klover allow you to borrow money based on your history of direct deposits into a linked account. Most of these services require no credit check to borrow money. You will pay back the loan upon receiving your next paycheck that’s direct deposited into your linked bank account.
If you’re looking at a large expense, a personal loan from a bank, credit union, or online lender might be a more affordable option compared to a cash advance. If you have good credit, the interest rates for personal loans are typically lower than cash advance APRs. Repayment terms are also often more flexible, allowing you to spread out the cost over several months or even years.
Strategies to Avoid Needing Cash Advances in the Future
If you find yourself frequently relying on cash advances or even paycheck advance services, you’ll want to reconsider your finances. Are there ways you can reduce your daily living costs and then start to build an emergency fund to cover unexpected expenses?
Here are some tips to help you create a more solid financial base that allows you to cover your bills and other expenses every month without running out of money.
Build an Emergency Fund
An emergency fund is your financial safety net. Experts typically recommend saving enough to cover three to six months’ worth of living expenses. Start by setting a small goal, such as saving $500, and then work your way up. Having an emergency fund in place can help you cover unexpected expenses without resorting to costly cash advances or other forms of debt.
Cut Down on Expenses and Save Money
If your budget is tight, try to identify areas where you could cut back to save money. This could mean dining out less, cancelling unused subscriptions, or switching to a less expensive phone or internet plan. Every little bit you save can be directed towards building your emergency fund.
If you are paying down high interest credit card debt, consider negotiating lower interest rates. If you can, try to transfer balances to a lower interest card or consider taking out a debt consolidation loan.
Consider Credit Counseling
If you’re consistently finding yourself considering a cash advance, it may be a sign of deeper financial issues. Nonprofit credit counseling organizations can offer guidance and help you create a debt management plan. They can work with you to set a budget, offer strategies to manage your debt, and help you understand your options for moving forward.
While it’s possible to get cash from a credit card, this should be a last resort due to the high costs involved. Before using a credit card cash advance, consider other options. Remember that planning ahead and having an emergency fund are the best ways to prevent needing to borrow cash in a pinch.