What is a cash advance?

A cash advance is when you withdraw money against your credit card limit. Essentially, it allows you to withdraw cash like a debit card but with some key differences. You should only use a cash advance for emergencies.

How do cash advances work?

You can complete a cash advance in three ways:

1. At an ATM: You'll need your credit card's PIN to take out cash from an ATM. If you don't know your credit card's PIN, many issuers allow you to request your PIN online.

2. At your bank: You'll need proper identification to access a cash advance at a bank.

3. Over the phone:  A cash advance processed over the phone transfers money from your credit line to an account of your choosing — such as your checking account or savings account — for you to access. However, not all credit card issuers allow you to complete a cash advance over the phone.

Generally speaking, you can withdraw anywhere from $100 to 30% of your credit limit through a cash advance. The amount of cash you request — plus the cash advance fee (more on that later) — will be deducted from your available credit.

What is a cash advance fee?

The cash advance fee is an amount you're charged upfront to withdraw cash using your credit card. The credit card company charges this fee as soon as you take out a cash advance. Cash advance fees typically cost $10 or 3% to 6% of the cash advance amount — whichever is greater.

You owe the cash advance fee even if you pay the money back the next day. It's not like spending on your credit card where you have roughly a month to pay off your credit card balance without owing anything.

And the 30% limit mentioned earlier includes the cash advance amount and the cash advance fee. Say your card has a $5,000 limit. You might think you could take out 30%, so $1,500. But really the most you could receive is $1,350; the remaining $150 covers the cash advance fee.

On top of the cash advance fee, your credit card will charge interest. A cash advance balance is separate from the one that tracks your purchases. That's because the typical credit card's cash advance annual percentage rate (APR) is higher than the APR for spending, and interest starts accruing on cash advances right away.

Finally, if you take out your cash advance using an ATM that isn't part of your bank or credit union network, you could owe an out-of-network ATM fee. 

Example of how much a cash advance costs

Say you want to use a cash advance to take out $1,000 from your credit card. Your card charges a 3% cash advance fee plus a 25% APR for cash advances. You use an out-of-network ATM to take out the cash advance, and the ATM charges another $4. You also take a month to pay the money back. You'd owe the following:

You'd owe $55 for taking out a $1,000 cash advance and paying it back within a month. So you'll need to pay back $1,055 in total.

How do you pay off a cash advance?

You pay off a cash advance the same way as your regular credit card bill: by making a payment over the phone, by mailing a check or through your card's online account or mobile app. Credit card companies must apply any payments above your minimum monthly payment to the balance charging the highest interest rate. Since cash advances usually charge a higher APR than unpaid credit card purchases, your payments will first go toward paying off the cash advance.

Remember, a cash advance starts charging interest immediately. The sooner you pay off the debt, the less you'll owe. Every day makes a difference. Consider making partial payments as soon as you can, and use faster payment options, like the phone or online versus the mail, to reduce how much you owe in interest

Pros and cons of cash advances

A cash advance can have more cons than pros, but it may make sense in some cases. Consider all your options before landing on a cash advance.

Pros

Gives you cash immediately

You can use a cash advance to get money right away. You can get this money outside of regular banking hours using an ATM. It's the same speed as withdrawing money using your debit card.

No application or credit check required

The credit card company approved you to borrow money for a cash advance when you qualified for the card.

Doesn't require collateral

Collateral is a valuable asset you use to back up the repayment of a loan, such as a car or a house. While personal loans might require collateral, cash advances don't.

Costs are lower than payday loans

Payday loans are another way to borrow cash immediately. These loans can charge nearly 400% APR when you combine all the fees. A cash advance is less expensive when you need money fast.

Cons

Higher interest rates and fees

Cash advances aren't cheap. You owe the upfront cash advance fee plus interest. The cash advance APR is usually higher than what you owe for spending on your credit card.

Starts charging you immediately

The second you take out a cash advance, you owe the upfront cash advance fee. The credit card also begins charging interest right away. You don't have a grace period like spending on your credit card.

Can hurt your credit score

When you take out a cash advance, the unpaid balance counts for the total utilization rate of your credit cards. Getting close to maxing out your cards can lower your credit score. Beware of taking out a large cash advance if you plan on applying for a mortgage or car loan in the near future.

No fraud or purchase protection

If your credit card is stolen and the thief makes purchases, you're protected and will be reimbursed. But if you take out a cash advance and someone steals your money, it's gone. Credit cards also offer purchase protection if there's something wrong with what you buy, such as a defective product. When you pay cash, you don't receive purchase protection.

Alternatives to cash advances

Generally, cash advances aren't a good option. The cash advance fee and high APR make them an expensive way to access cash.

Here are alternative ways to access cash when a normal ATM withdrawal isn't an option and you have a financial emergency

Transfer your balance to another card

Balance transfers usually involve moving the balance on a high-interest credit card to a card with a 0% APR promotional rate. However, you could also use a balance transfer to get cash. You'd request the balance transfer amount by check, and that amount — plus the balance transfer fee — would be applied to the limit on your balance transfer credit card.

Then, you could pay off that amount over time since the 0% APR means you won't be charged any interest over the promo period. Note: Balance transfers can take seven days or longer to process, so make sure you can wait that long to receive the money.

Borrow money from a friend or family member

Borrowing money from a friend or family member can be more affordable than a cash advance since there won't be any fees or interest charges. Just make sure you agree on how you'll pay the person back so there's no awkwardness involved.

Take out a personal loan

A personal loan also gives you cash. You'll need to apply for the loan with your bank or credit union. The lender will consider your credit score and income for repaying the debt. The process typically takes between one day to a week. The personal loan terms depend on the strength of your application. If you qualify, you could potentially borrow more cash at a significantly lower interest rate with a personal loan than a cash advance.

Should you consider a cash advance?

You should only use a cash advance when it's an emergency and you're out of options. Otherwise, you can get the money you need in more affordable ways. The sooner you act, the more options you'll have at your disposal. Learn more about our credit cards, offers and benefits.