Takeaways
- Credit card cash advances are short-term loans with high interest rates.
- Cash advances can indirectly affect your credit score by increasing your credit utilization.
- Credit card companies place cash advance limits based on your credit limit.
- You don't need to apply for a new loan when taking out a credit card cash advance.
- Cash advances can be better alternatives to quick cash than payday loans which charge exorbitantly high interest rates.
What is a Cash Advance?
A credit card cash advance is a short-term loan offered by your credit card provider, which allows you to get cash from a bank branch or ATM. Instead of withdrawing cash from your checking account or savings account, a credit card cash advance borrows money against your credit card’s pre-established line of credit. Like everything with your credit card, the amount borrowed is added to your balance.
How a Cash Advance Works
What is the use case for a credit card cash advance? Well, if you are like more consumers, you probably use your best credit card to make most of your purchases online or in person. Whether you are trying to optimize for travel or cash-back points, making purchases using your credit card is financially advantageous.
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However, some situations require cash-only purchases where you can’t use your credit card. For example, if you are out with friends and what to buy lunch from a cash-only food truck or pick up groceries from a farmer’s market, you might use cash. These are the situations where a credit card cash advance might make sense. Using your credit card to extract cash is super convenient, but it can be expensive.
Advantages of a Credit Card Cash Advance
Get Cash Fast: The advantage of having a credit card is that you can buy first and pay later. This concept applies to purchases as well as credit card cash advances. If you need cash quickly, you can use your credit card to escape a financial pickle.
No Credit Check: Because you already have a credit card with an established line of credit, you do not need to apply for a new line of credit to get a cash advance. This can preserve your credit score, although your credit card cash advance will count toward your credit utilization.
Avoid More Debt: Managing your debt can be difficult, especially if you have multiple credit cards, student loans, auto loans, and personal loans. The more you can consolidate where you need to make monthly payments, the easier it is to ensure you can pay off your debt on time.
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How to Get a Cash Advance from Your Credit Card
Your credit card allows you to get cash advances in several ways. Depending on when you need cash, one of these could be more appealing.
- In-Person Bank Cash Advance: This is probably the fastest option if you are near one of your credit card company’s branch locations. Like withdrawing cash from your checking account or savings account, you will have to show identification and your credit card.
- ATM Cash Advance: Near one of your bank’s ATMs? Then if you have your physical credit card and your personal identification number (PIN) you can withdraw cash using your credit card from an ATM. Keep in mind that you could be subject to daily withdrawal limits. Knowing these ahead of time can help you plan your cash needs.
- Convenience Check Cash Advance: Convenience checks are like regular checks, but instead of funds being withdrawn from your checking account they are charged to your credit account. You can request your credit card company to provide you with convenience checks linked to your credit card.
Disadvantages of a Credit Card Cash Advance
- ATM Fees: If you use an ATM to withdraw cash, you will likely be charged a small fee of several dollars. This is a convenience fee from your credit card.
- Bank Fees: In addition to the small ATM fees, you will also be charged a percentage of each cash advance request or a minimum cash advance fee, whichever is higher. These charges vary by credit card and are approximately 3-5% of your cash advance. For example, if you withdraw a $1,000 cash advance with your credit card that charges a 5% cash advance fee, you will be charged $50. But if you only withdraw $100, you will be charged a minimum cash advance fee of $10 (which varies by credit card).
- Withdrawal Limit: Your credit card has a cash advance withdrawal limit. Your limit is based on your credit score and credit limit. Be sure your cash needs don’t exceed your credit card cash advance limit (more on this below).
- High Interest: Cash advances usually have a higher Annual Percentage Rate (APR) than regular credit card purchases. The amount of cash you withdraw is treated as a separate short-term loan and thus has a different APR.
- Immediate Interest: Credit card purchase interest starts on the unpaid statement balances at the end of your credit card billing cycle. For cash advances, however, interest begins to accrue right away. That is why it is imperative to have a cash advance repayment plan before withdrawing a credit card cash advance.
Although the disadvantages of credit card cash advances seem small in isolation, ATM fees, bank fees, and immediate interest charges can make the costs of credit card advances very high relative to other methods of getting cash quickly.
Alternatives to a Credit Card Cash Advance
Credit card cash advances can be costly compared to other alternatives to cash advances. If you aren’t in an immediate cash crunch, it is a smart money move to evaluate other options. Although none of these options beat the old fashion concept of saving cash over time for your purchase, they could cost less than a credit card cash advance.
Personal Loan: A personal loan could be a good option if you have a good credit score. This is a solid option if you need a large amount of cash to fund a project like a home renovation or buy furniture. Overall, the terms of a personal loan can be more favorable than a credit card cash advance.
Family and Friends Loan: Depending on your relationships, you can always consider simply asking a family member or friend for a short-term cash loan. Mixing friends and family with your finances can get tricky. Evaluate whether getting a loan from friends or family is worth it before asking for a loan.
Cash in Credit Card Rewards: Among all the solutions, this might be the least costly. If you use a credit card with cash-back rewards, consider cashing in any used reward points for cash. You can offset your credit card balance or get a cash deposit to your checking or savings account.
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What is My Maximum Cash Advance Limit?
Your maximum cash advance limit depends on the quality of your credit card. If you have a high credit score with access to one of the best credit cards, you have a higher maximum cash advance limit because cash advance limits are a percentage of your credit card’s credit limit. For example, if you have a $30,000 credit limit with a credit card advance ceiling of 20%, your maximum cash advance would be $6,000.
Smart Summary
Credit card cash advances are a high-cost solution to getting cash quickly. However, they can be incredibly helpful if you are in a cash-only situation, where cash is the only answer. Before taking out a cash advance, make sure you have appropriately considered how you will pay off your credit card balance with this new cash advance. You can always hedge against taking out a cash advance by carrying cash and being prepared for any financial situation. Planning will save you time, money, and energy, but it’s a smart money move to consider all your options when you need cash fast.
Frequently Asked Questions
It depends. If you pay off your cash advance quickly, it won’t necessarily damage your credit score. However, it is important to note that cash advances do apply toward your credit utilization. Credit utilization is a major driver of your FICO credit score.
The simple answer is that you can’t pay less for credit card cash advances. What you can do, however, is plan appropriately to not have to use credit card cash advances. Carrying a minimum amount of cash – say $100 – is a great way to offset the need for a credit card cash advance.
Taking out a credit card cash advance shouldn’t be your first option for accessing cash. There are plenty of other opportunities to get cash quickly, including withdrawing money from your emergency fund or savings account.
Your emergency fund should be used for true emergencies, not for buying lunch from a food truck. Mitigate dipping into your emergency fund by using other avenues of getting cash or always carrying a set amount of cash. You can simply ask a friend to borrow money and pay them back later when you have access to your checking or savings account. If you are trying to purchase a larger cash-only item, consider other opportunities to get cash quickly.
