What is a Cash Advance?
The world of shopping happens mostly online nowadays. But sometimes you need cash. It might be at a farmers’ market, and you want those delicious-looking apples. Or your car breaks down and you need cash for a ride. In those moments, you may consider getting a cash advance. But before you do, there are a few things you need to know.
So, what is a cash advance on a credit card? A cash advance involves using your credit card to withdraw money. But unlike a cash withdrawal, you have to pay that money back. There are some fees that come with a cash advance on a credit card that you don’t have when withdrawing from a debit card or savings. Take the time to read your terms and conditions to know exactly how a cash advance works at your bank.
How Does a Cash Advance Work?
Cash advances are so handy because they’re very easily accessible. Here are the main ways to get a cash advance:
- ATM: Any of your bank-approved ATMs will allow you to pull money for a cash advance. All you’ll need is your card and your PIN. Remember, you’ll have the standard cash advance fee alongside the typical ATM fee.
- In-Person: You can go into a brick-and-mortar location that uses the same type of credit card network (like Visa® or Mastercard®) to request an advance. This has the advantage of in-person help, so you can have your questions answered and make the process go smoothly. Keep in mind that you’ll need proper identification, and there may be processing fees on top of the standard cash advance fee.
No matter how you get your cash advances, there are typically withdrawal restrictions, like a daily limit or transaction limit. Many issuers will also give you a total cash advance limit, which will either be a percentage or a set amount.
To give a broad example, say your credit limit is $1,000 and your limit for cash advance withdrawals is 30% of your credit line. If you don’t have a daily limit, then you can get multiple advances that add up to $300 or one cash advance for $300. However, if the amount is based on your available credit, and not your overall credit, that number changes. Taking the example of $1,000, if you’ve already used $500 of your credit limit, that means you can only pull from the remaining $500, so your withdrawal limit is $150.
Other issuers use a set amount instead of a percentage. So, if your credit limit is $300, you’d be able to withdraw $300 no matter how much of your credit limit you’re using, as long as you’re not carrying a balance. These numbers are bound to change, depending on your provider and your circumstances. Know what a cash advance looks like with your credit card before making any decisions.
What are the Costs Associated with a Cash Advance?
Unlike simply buying something with your credit card, a cash advance comes with additional costs. There are two main costs associated with a cash advance: the fees and the Cash Advance Annual Percentage Rate (APR). Cash advance fees can come in one of two forms: a flat fee or a total percentage. The higher of these two fees is what typically gets applied. So, if you use a cash advance to withdraw $300 and the fee is $10 or 4% (whichever is higher), then the fee would be $12 (which is higher), so you'll be charged $12.
The other cost, APR, is the cost of borrowing money on a credit card. What makes the APR for a cash advance unique is that it’s usually higher than your credit card APR. Your exact APR for a cash advance may be found by looking at the Schumer Box when first applying for a credit card, or on your monthly credit card statement. If you’re unable to find the information you need, you can call your credit card issuer.
Does a Cash Advance Hurt Your Credit Score?
Getting a cash advance won’t hurt your credit score, just like using your credit card doesn’t hurt your score. But you need to be responsible with the advance and take all of the same precautions you would with a credit card. Payment history is the single biggest factor when it comes to calculating a credit score, so make sure to make each month’s payment on time. Also, keep in mind that a cash advance counts toward your credit utilization. A higher ratio can impact your credit score, so aim to keep your utilization ratio below the recommended 30%.
When Do You Pay Off a Cash Advance?
A cash advance appears in the same monthly statement as your other credit card charges. You’ll pay off your cash advance by making your regular monthly credit card payment. You can choose to pay the advance off in monthly intervals or all at once. It just depends on what’s best for you. Keep in mind that there’s usually no grace period and a higher APR for cash advances.
The good news is that your credit card issuer is typically going to direct your payments toward the highest APR balance first, in this case, your Cash Advance APR. That means that your credit card payment will go toward your cash advance first before it goes toward the other purchases you made with the lower Purchase APR.
Are Cash Advances a Good Option?
Cash advances can be a convenient and helpful option when you’re in a bind and need cash. But remember to take the time to weigh the additional costs against other options. Every financial decision comes with its own pros and cons, and only you can know what’s best for your situation.
Alternatives to a Cash Advance
If you’d like to avoid paying the fees and higher APRs that typically come with cash advances, you might want to look into other options. Keep in mind that if you need cash immediately, some of these options may not be as quick as simply using the nearest ATM.
- Borrowing Money: Most people like to keep business and family separate, but sometimes you must turn to the people around you. Ask those you trust that are in good financial standing if they can help you and you’ll pay them back later. It could be as simple as a gentlemen’s agreement, or you can have something drawn up to ensure both sides are protected.
- Shop Around: It may not be the answer you want to hear, but you might have to take your business elsewhere. If you’re looking for a cash advance because a vendor only takes cash, and an advance isn’t a good option for you, moving on could be the right choice. You can always try to come back later with cash or look online for something similar.
Is a Cash Advance for You?
A credit card cash advance can be a saving grace to you in a time of need but be sure to understand the costs beforehand. Closely look over your card issuer’s terms and conditions to learn the exact details and what it will cost you. Once you’re sure of all the facts and have compared a cash advance on a credit card to other options, you can decide if a cash advance is right for you.