Using debit and credit cards is a fast and easy way to pay for things. But sometimes, cash is preferred and when you need it in a pinch—your cards can still come in handy. In particular, you can even use your credit card to get cash through what’s called a cash advance.
By tapping into your line of credit, you can still have the benefit of borrowing money to cover an expense and still paying with physical cash if the merchant requires it.
What is a cash advance?
A cash advance is cash that you borrow using your credit card.
“Examples of cash advances include using your credit card at an ATM, using a cash advance check provided by a card issuer or also using your credit card for certain cash-like transactions like gambling, bail bonds, wire transfers, traveler’s checks, money orders, etc,” says Ted Rossman, credit cards senior industry analyst at Bankrate.com.
Keep in mind that your credit provider may only allow you to withdraw cash up to a percentage of your credit limit. For example, if your card limit is $12,000 and your cash advance limit is 20% of your credit line, you can borrow a maximum of $2,400 for a cash advance.
How to get a cash advance using your credit card
If you need a cash advance, you can withdraw money in no time with three easy steps.
1. Check your credit card agreement for cash advance details
If you need to use a cash advance, you should expect high fees and interest rates. So the first thing to do is read your credit card agreement to understand the cost of borrowing against your credit line.
It’s also important to know repayment will work. Typically, your monthly payments will go to your credit card balance first. Any excess amount over your minimum payment will go to the account with the highest interest rate, which may be your cash advance balance. Consider paying over your credit card’s minimum amount to ensure you’re chipping away at your cash advance balance. As a result, you can avoid those compounding interest fees.
2. Determine how much funds you can withdraw
Look at your credit statement to see how much you’ve already used. A good credit utilization ratio is 30% or less of your total credit line. Exceeding that limit could negatively affect your credit score. So, consider other options if you’ve surpassed 30% of your credit line’s utilization ratio.
3. Get your cash advance
You don’t have to travel far or wait for approval to get a cash advance. There are three ways you can get a cash advance in as little as a few minutes.
- ATM: You can withdraw cash from an ATM if your credit card has a personal identification number (PIN). Take your card down to an ATM, select the cash advance option and withdraw cash. Keep in mind that you may have to pay ATM withdrawal fees which hovers at approximately $4.72.
- In-person: You can get a cash advance from a physical bank if you don’t have a PIN. All you’ll need is your credit card and proof of identification.
- Convenience check. A convenience check works like a personal check. However, in this case, you’ll get a cash advance from your credit card in the form of a check. Call your credit card issuer to request a convenience check. Subsequently, you can cash the check out at your bank or pay directly to a third party.
Pros and cons of cash advances
Cash advances can be helpful if you need cash immediately. However, its hefty interest rates and fees could end up costing you.
- A credit card cash advance is a convenient solution if you need cash: If you’re strapped for cash and have limited resources, a credit card cash advance could come in handy. All you have to do is go to the nearest bank or ATM, and you can get cash in minutes, no questions asked.
- You don’t have to apply for a loan to borrow money: A loan usually requires you to fill out an application and wait for approval from your bank or lender. And most lenders will perform a hard inquiry on your credit report, which may be a ding on your credit score. A credit card cash advance is a surefire way to get the cash you need without the hassle.
- Credit card cash advance allows for flexible repayments: While an installment loan requires fixed payments, you’ll pay your cash advance like a credit card bill. You can either pay in full, pay the minimum amount, or somewhere in between.
- A credit card cash advance typically has high fees: Your cash advance’s APR may range from 25% to 27%, says Mohr. Rossman also mentions that cash advances come with additional fees which can be as high as 5% of the advance or up to $10, whichever is higher. In contrast, the average APR for a 24-month personal loan is 10.16%, far less expensive than the interest rates on a cash advance.
- Credit cards usually have credit advance limits: Your credit company may only allow you to withdraw a portion of your credit line in cash. If you’re buying something expensive, consider alternative options.
- Your cash advance will start accruing interest immediately: Credit cards typically have a 21-day grace period, but a credit card cash advance doesn’t. Interest will begin accruing on your cash advance as soon as you withdraw money. If you know that paying off your borrowed cash will be difficult, you should avoid this option.
Other options to consider
A credit card cash advance may be necessary if you’re in a pinch. However, alternatives are available if you want to avoid the cash advance risks altogether.
Use your own funds: Dip into your checking account or savings account to make a payment before you take a cash advance. If you don’t need cash immediately, consider using credit on your credit card instead. A cash advance should be your last resort. To avoid using cash advances in the future, build a rainy day fund in a secure, liquid savings account.
Apply for a loan: A personal loan often has lower interest rates and higher borrowing amounts than cash advance limits on a credit card. If you can wait to hear back from your loan provider, consider applying for a personal loan.
Borrow from others. Your first instinct may be to shy away from asking your friends and family to lend you some cash. However, asking someone to help you out may be cheaper than borrowing cash from your credit card company. More often than not, you can avoid paying any fees and interest rates as long as you promise to pay that person back.