What Is a Cash Advance on a Credit Card?

When you get a credit card, you should receive information about the various terms and rates for the different ways you use the card. One option is to receive a cash advance.

cash in hand

You may know that a cash advance means you get cash to spend how you want. However, you may not be aware of the true definition and limitations of a credit card cash advance.

Find out exactly how it works and what you should know before you decide to get cash from your credit card.

What is a credit card cash advance?

It’s not often in today’s tech-savvy society, but there are times when you must use cash to make a payment. Perhaps the company or individual doesn’t take credit cards or checks, but you don’t have the money in your bank account for the payment. If you need cash, you can turn to your credit card for a cash advance.

In simple terms, a credit card cash advance is money you receive in cash from the available credit on your credit card. It is basically a loan offered by your credit card issuer that you can use to spend in any way you wish.

Credit Card Cash Advances from ATMs

You can go to an ATM or a bank with your credit card and enter your PIN (or whatever identification the credit card company requires) to withdraw money. You do the same thing as you would if you were checking the balance of your card, except you hit “withdrawal” instead of “balance inquiry.”

As with any payment where you use your credit card, you must repay cash advances. You will be charged interest on cash advances based on the amount you withdraw. And similar to credit card purchases, interest continues to accrue until you have paid off the balance.

It is an easy and convenient way to access cash when you don’t have enough in your bank account. You can get this money for emergencies as long as your account is in good standing and you haven’t maxed out your credit card limit.

However, just because it is easy to get a cash advance doesn’t always mean it’s wise to do so. First, you need to understand how cash advances work to realize what you are doing when you hit that withdrawal button.

How does a cash advance work?

When you receive your credit card, you usually receive a personal identification number (PIN) in a separate mailing. The PIN is required for you to get a cash advance.

Another option is to take your credit card into a bank and request a cash advance. You won’t need a PIN because you can use your driver’s license or another form of identification to prove that you are the account holder.

Cash Advance Fees

When you check your credit card balance after getting a cash advance, you’ll notice a fee that has been added.

In fact, you may read about the fee when you’re requesting the advance and may be required to agree to it before you receive your money. The fee is usually a percentage of the cash advance you’re requesting and comes off your credit limit immediately.

For example, for a $400 cash advance, the cash advance fee is 3%. This means that to get $400, you will have to pay another $9, or a total of $409.

This doesn’t sound like much if you really need the money. However, it can mean the difference between going over your limit or the transaction being denied if you are close to maxing out your credit card.

What are the limitations of a cash advance?

You are generally limited to a certain percentage or amount of your credit limit for a cash advance. For instance, you may have a $1,000 credit limit, but you may only be able to get a $500 cash advance.

The cash advance limit is designed to prevent people from using their credit cards for cash emergencies for too long. Many credit cards also have a daily limit.

For example, you may be able to use your card to get up to $500 in cash, but you may have a daily limit of $200. These are just examples, and each credit card company has its own limits and rules, so check your card agreement.

It’s also important to note that if you use your card to send a MoneyGram or Western Union, some credit card issuers count that as a cash advance, limiting your daily total.

Higher Interest Rates for Cash Advances

While the credit card advance fee doesn’t seem like much, it isn’t the only charge you pay. You’ll also pay interest on your cash advance just like any other purchase with your card, except you usually don’t receive a grace period.

For instance, with a store purchase where you swipe your card, you usually have 20 days or even 30 days to pay off the balance before any interest is accrued and added to your account.

This allows you to use your credit card to buy something even if you don’t have the money now. You can pay it back before interest is charged, so you end up paying nothing more than what you would if you originally had cash. However, getting a cash advance doesn’t work the same way.

How Interest Works on a Credit Card Cash Advance

In most cases, you’ll start paying interest from the day you receive the cash. Interest continues to add up until you pay it off in full. Another thing to consider is the cash advance APR.

If you look at the details of your credit card account carefully, you may see more than one interest rate. This is because credit card companies often charge a separate APR for cash advances than for regular purchases. Not surprisingly, the cash advance APR is usually higher.

Another issue with getting a cash advance is that you don’t get rewards for using your card in this manner. If you have a rewards credit card, you may get points for every dollar you spend on purchases.

Cash advances usually don’t count towards points, miles, or other rewards. Therefore, it’s far better to use your card to make purchases if you want to increase your rewards balance.

Is a cash advance right for you?

Once you understand the details of cash advances, you can see how they can be beneficial in extreme situations. However, cash advances really should only be used as a last resort. You can often find other ways to get the cash you need rather than relying on an advance from your credit card.

It may be a quick way to get cash, but it’s also a costly one. So when shopping for credit cards, be sure to compare fees and interest rates to get the best deal.

If you find you absolutely must get one, commit to paying it off as quickly as possible. It’s also a good idea to build an emergency fund to rely on rather than using your credit card for cash.

By creating a strong buffer of cash, you’ll save yourself a lot of time, money, and worry in the long run. A cash advance is a good backup to have, but don’t rely on it for every financial emergency that pops up.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.