What You Should Know About a Credit Card Cash Advance

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Credit card cash advance charges and fees can be high. They also tend to have higher interest rates than regular credit card purchases and no grace period. 

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A cash advance can be done at an ATM, through a bank teller or with convenience checks supplied by your card issuer. To learn more, consult your card agreement, online account or call the card issuer.
Fees

A credit card cash advance is a bit like taking out a small loan from your card issuer. It's an option when you need quick cash and don't have other alternatives, but it comes with fees that can make it expensive. These fees may include a transaction fee and an interest rate that's higher than the one charged for purchases. There's also usually no grace period for cash advances, so they start accruing interest immediately. Other fees may be imposed by the ATM or bank where you get your cash advance, or by your card issuer.

When you use a credit card for a cash advance, your total available credit is reduced by the amount of the advance. The balance is then paid back in installments along with interest, typically over a 12-month period. The cash advance balance is considered a new debt on your credit report and your overall credit utilization (the amount of your available credit that's currently being used) is increased, which can impact your credit score.

The transaction fee on a credit card cash advance is a flat rate, such as $5 or $10 per advance, or it's a percentage of the advanced amount. The latter structure is common and can be as high as 5% of the advance amount. It's possible to avoid this charge by using your card for regular purchases instead of getting a cash advance.

Some cards even impose separate transaction and cash advance rates. You can find this information on your card's website or in its cardholder agreement. A few cards have no cash advance fees at all, but they tend to charge a higher APR than other cards for purchases.

If you're considering a credit card cash advance, consider whether you really need the money you're borrowing or can get by without it for a while. Also think about how you'll pay back the advance to avoid interest charges and high debt utilization. Then consider alternatives, such as an emergency savings account or a personal loan. If you must take out a cash advance, only borrow what you absolutely need and try to pay it off quickly.
Interest

If you're short on money and need to make a purchase, it may seem tempting to take out a credit card cash advance. However, this is a very expensive way to borrow funds, and you should avoid it whenever possible. The interest rates associated with cash advances are usually higher than those for purchases, and they start accruing immediately. In addition, many credit cards charge an upfront cash advance fee of up to 5% of the amount borrowed.

In some cases, it's impossible to avoid a credit card cash advance. For example, you may need to buy something online, at a restaurant that only accepts cash or from a taxi driver who won't take credit cards. Or you might be faced with an emergency situation that leaves you unable to use any other form of payment. These situations can lead to credit card debt and other expensive fees, such as late charges.

Using a credit card for cash advances can also negatively impact your credit score. This is because the interest rate on cash advances is often much higher than that for purchases and other types of credit card debt, such as balance transfers. And since there's no grace period for cash advances, interest starts accruing as soon as you take out the loan.

As a result, paying off a credit card cash advance can be difficult. But if you're able to pay off the balance quickly, it shouldn't have any long-term effect on your credit score.

Before you decide to get a credit card cash advance, be sure you understand the terms and conditions of your card. Check your card agreement or contact your card issuer to learn about the fees, interest rates and how payments work for cash advances. Then, use your budget to determine if you really need the cash advance and how you'll manage repayment. Also, consider whether less-expensive borrowing options might be available to you. And if you do decide to take out a cash advance, remember to repay it as quickly as possible to minimize the total amount of interest charged.
Limits

Credit card issuers typically limit how much cash you can get as a credit card advance. This is typically a percentage of your card limit, and may include fees. You can usually find out what your limit is by logging into your online card account or calling your card issuer.

You may also have access to a cash-equivalent limit, which is the amount your card issuer considers purchases of certain items to be if they are not clearly labeled as such. This can include such things as money orders, lottery tickets and gambling transactions. In these cases, your card issuer will probably charge you a fee for the transaction and then report that purchase to the credit bureaus as a cash advance.

When you take out a credit card cash advance, your debt will start accruing interest at a high rate as soon as the cash is received by your bank, so it's best to pay that balance off right away. If you do not, your balance may end up going over your credit card's limit, which can hurt your credit score and make it more difficult to obtain new loans.

Most lenders will not approve credit applications if a person is over their credit card limit. That's because lenders want to see a track record of paying down debt and limiting spending.

In addition to having to pay a high interest rate for a credit card cash advance, you can also be charged a higher minimum monthly payment. Depending on your card agreement, this minimum payments might go toward paying off the purchase balance first, rather than the cash advance balance, or they may be applied to both.

Credit card companies and credit counseling agencies recommend that you try to avoid cash advances as much as possible, unless they are the only option for covering expenses you must pay immediately. Instead, try to budget ahead for unexpected expenses and save up to cover them if you need to. You can also use a debit card to get the money you need, or ask friends and family if they are willing to lend you the money you need.
Alternatives

Some situations require that you get cash quickly, but there are many alternatives to a credit card cash advance. If you are in a pinch, you can try asking your creditor for an extension, or work with them to change your due date without affecting your credit score. In addition, there are some cards that offer a 0% interest rate on cash advances for an introductory period. You may also be able to borrow from friends or family.

Getting a credit card cash advance might seem like a good option in the moment, but the fees and high interest rates will add up over time. This is why effective debt relief strategies focus on eliminating high-interest debt as fast as possible.

Credit card cash advances are one of the fastest ways to get money, but they should only be used in rare and emergency situations. The transaction fees and interest rates are so high that they can make it difficult to pay back the loan, especially if you're dealing with an unexpected expense.

A cash advance can impact your credit score in two different ways: the amount you withdraw and how you repay it. While the withdrawal portion will remain on your account for a long time, you can speed up repayment by paying more than the minimum monthly payment. If you do this, your lender is required by law to apply your extra payments first to the cash advance balance before transferring them to the regular purchase balance.

Another way to speed up repayment and avoid paying more in interest is to use a personal loan. You can find loans with much lower interest rates than credit card cash advances, and you may be able to qualify for a loan even if your credit scores are low.

Whether or not you should take out a credit card cash advance depends on your financial situation and how you plan to use the money. If you have a plan for how to pay it back in a short period, it may be less expensive than payday or car title loans.