How does a credit card cash advance work?

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How to Get a Credit Card Cash Advance

At its most basic, a credit card cash advance is like taking out a small loan from your credit card issuer – a small but very expensive loan (more on that below). You only withdraw money up to your card’s cash advance limit, which you can find on your credit card account page (or app) or in your cardholder agreement .

Your credit card’s cash advance limit will generally be lower than your credit limit, with a typical limit between 20% and 50% of your total spending limit. For example, if you have a credit limit of $5,000 on your card, your cash advance limit will likely be less than $2,500. Cardholders with higher credit scores tend to have higher spending and cash advance limits.

You can get a credit card cash advance at a regular ATM, provided you have your cash advance PIN. In most cases, you will need to proactively request your cash advance PIN from your issuer. Some issuers can provide your cash advance PIN through your online account, but you may need to call. The card issuer will likely mail you your cash advance PIN if you request it by mail or phone.

Before you even consider a credit card cash advance, make sure your credit card issuer actually authorizes them. You can see if your card can be used for a cash advance by checking your cardholder agreement.

In addition to getting a credit card cash advance through an ATM, you can also use what’s called a convenience check. Often sent in the envelope with your card, convenience checks can be used just like you would a personal check (we’ve got a quick guide to writing a check if you’re card-only).

The high costs of a credit card cash advance

The appeal of credit card cash advances is no mystery; when you need cash fast, the convenience of hitting an ATM with your credit card is no small feat. But you should be aware of all the costs before you start entering PINs.

As soon as you get a cash advance with your credit card, you start getting charged – and in two directions. First, the transaction itself will come with a cash advance fee. This fee will generally be a percentage of the cash advance amount, with a fee of 3% to 5% being typical.

In addition to transaction fees, cash advances will incur interest charges, just like regular purchases. Unlike regular purchases, however, cash advances don’t have a grace period.

No grace period means the cash advance will start earning interest as soon as you complete the transaction. Unfortunately, that means you’ll have to pay interest on the cash advance even if you pay back all the money you’ve withdrawn when you receive your statement.

Not only does interest start accumulating immediately, but many credit cards also charge a higher APR on cash advances than on purchases and balance transfers. In fact, the APR of a credit card cash advance can easily be 5-10% higher than the normal purchase rate.

It should also be noted that you will not earn any type of credit card reward on your cash advance. A credit card cash advance will also not count toward the required spend for a sign-up bonus.

Cash advances that aren’t actually money

We focused primarily on credit card cash advances which involve actively choosing to withdraw money as a loan from your credit card account. But that’s not the only type of transaction your credit card can qualify as a cash advance.

Many credit card companies will code certain purchases as a cash advance if they consider the purchase to be a cash transaction. It means that you are buying something that acts like money.

For example, if you use your credit card to bet at a casino or on a racetrack, your issuer will likely consider that purchase a cash advance. Other types of purchases that qualify as cash equivalents can include money orders, lottery tickets, travelers checks, cryptocurrency, and some gift cards.

How to repay a credit card cash advance

As we mentioned above, a credit card cash advance starts earning interest – at a high rate – as soon as the transaction hits your account. This means that you should repay the cash advance as soon as possible, as in “don’t even wait for your credit card bill to come” soon.

If nothing else, try to make more than your required minimum payment each month while you work to pay off your cash advance. Otherwise, you risk earning interest on this advance for a long time.

You see, your cash advance balance is separate from the other balances you carry on your credit card, including your purchase balance and the amount you owe on any balance transfers. The card issuer can apply the minimum payment amount to any of your balances, and they usually choose the one with the lowest interest rate.

So, making only the minimum payment means that your entire payment can be applied to reduce your purchase balance, while your more expensive cash advance balance doesn’t decrease at all.

If you pay more than the minimum payment, however, the CARD Act – a consumer protection law passed in 2009 – changes that. Creditors are required to apply any amount in excess of your minimum payment to the balance with the The highest interest rate, which is likely to be your cash advance.

When should you get a credit card cash advance?

Generally speaking, the transaction fees, up-front interest, and high APRs associated with a credit card cash advance mean you should avoid them whenever possible. However, in some cases, this may actually be the best option.

For example, if you need a small amount of money quickly and are considering a payday loan, a credit card cash advance may be the best choice. Short-term predatory loans will almost always be more expensive than a credit card cash advance.

And a credit card cash advance is definitely a better choice than getting evicted for not paying your rent or defaulting on another credit account. Plus, if you’re overseas and need quick access to cash, taking a credit card cash advance can be a lifesaver.

Alternatives to a credit card cash advance

Although some situations may call for a credit card cash advance, it should never be your first option. Depending on your needs, you may have other choices that make more sense.

For one, you should explore whether you can use your credit cards to make a purchase, rather than a cash advance. Most businesses accept credit cards these days, including many utility and rental companies. Although they may charge a processing or convenience fee, it should still be cheaper than a credit card cash advance.

Alternatively, low interest personal loans can be a good way to get the money you need. They can be especially useful for any large purchases that you may need to pay off over a year or more.

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