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What Is a Cash Advance?

Key Takeaways

  • A cash advance is the act of withdrawing cash against your credit limit through the use of your credit card.
  • Cash advances should only be used for emergencies due to the cash advance fee and high APR.
  • Cash advances can be completed at an ATM, bank, or — in some cases — over the phone.

By Stephen Sellner | Citizens Bank Staff

A cash advance is when you withdraw money against your credit card limit. Essentially, it allows you to withdraw cash like a debit card. Now, this might seem as easy and harmless as withdrawing cash using your debit card, but it’s not. There are major differences between the two, which is why a cash advance should only be used in case of emergency.

We repeat: Cash advances should only be used in case of emergency.

How do cash advances work?

A cash advance can be completed a few different ways:

  1. At an ATM: You’ll need your credit card’s PIN to do this. If you don’t know your credit card’s PIN — and that’s fair to assume — many issuers allow you to request your PIN online.
  2. At your bank: You won’t need your credit card’s PIN this way. Just proper identification.
  3. Over the phone: The cash advance is processed this way by transferring the money from your credit line to an account of your choosing — such as your checking account — for you to access. However, not all credit card companies 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 below) — will be deducted from your available credit.

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What’s a cash advance fee?

Cash advance fees amount to $10 or 3%-6% of the cash advance amount — whichever is greater.

The cash advance fee will be deducted from your credit limit just like the money you’re requesting from the cash advance. That means if you request a $1,000 cash advance and the cash advance fee is 3%, the amount deducted from your available credit line will be $1,030 ($1,000 cash advance + $30 cash advance fee).

And that 30% limit we mentioned before? That includes the cash advance amount and the cash advance fee. So if your credit card has a $5,000 limit, you might think you’re taking out a $1,500 cash advance, when really, you’re only receiving $1,350 of that and the remaining $150 covers the cash advance fee.

The cash advance fee might not be the only one you pay. You could end up paying an ATM fee if you process the cash advance at a different bank’s ATM. Plus, cash advances carry a higher APR than credit cards or loans, which we’ll explain next.

How do you pay off a cash advance?

If you must request a cash advance, it’s important to pay off that balance right away. Once again, you should pay off your cash advance balance right away.

A cash advance balance is separate from the one that tracks all your purchases. That’s because your cash advance APR is higher than your credit card’s typical APR, and interest starts accruing right away on cash advances.

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If you must request a cash advance, pay off that balance right away to avoid paying much higher interest fees.

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Are cash advances a good option?

Generally speaking, cash advances are not a good option. The cash advance fee and high APR make them an expensive way to access cash.

Here’s a list of better ways to access cash when a normal ATM withdrawal isn’t an option:

  1. Balance transfer: Balance transfers usually involve transferring 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 access to cash. You would 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 promo means you won’t be charged any interest penalty. Just make sure you pay back the amount before the 0% promo rate ends. Note: Balance transfers can take seven days or longer to process, so make sure you can wait that long to receive the cash before going with a balance transfer for your cash needs.
  2. Personal loan: Generally speaking, personal loans have lower APRs than cash advances and some lenders don’t charge any fees.
  3. Borrow money from a friend or family member: Not everyone has this option, but if a parent or grandparent can spot you the money you need, that’s much more affordable than a cash advance since there won’t be any fees or interest charges. Just make sure you come to an agreement on how you’ll pay the person back so there’s no awkwardness involved.

Ready to make the right decision for you?

Cash advances should only be used when it’s an emergency and you’re out of options. Otherwise, there are much more affordable ways to get the cash you need. The sooner you act, the more options you’ll have at your disposal.

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