A cash advance may seem like an easy way to get cash fast, but it can cost you a lot of money in interest and fees. Before you take out a cash advance, familiarize yourself with the terms, so you're not hit with an unpleasant surprise. And better yet, avoid a cash advance altogether.
Below, CNBC Select reviews the basics of a cash advance: what it is, the terms and fees, as well as better alternatives for getting cash quickly.
How a cash advance works
A cash advance is basically a short-term loan offered by your credit card issuer. When you take out a cash advance, you're borrowing money against your card's line of credit. You can typically get a cash advance in a few different ways:
- At an ATM: If you have a PIN for your credit card, you can go to an ATM and get a cash advance. If you don't have a PIN, you can request one from your card issuer. Note that it may take a few business days to receive a PIN, and there are often limits to the amount of cash you can withdraw from an ATM.
- In person: Visit your bank and request a cash advance with your credit card.
- Convenience check: Your credit card may have come with convenience checks, which can be used to write a check to yourself. You can then cash it or deposit it.
Cash advance terms and fees
Cash advances are an easy way to get cash fast, but they often come with hefty fees that outweigh any benefits. Before you take out a cash advance, review the terms so you're aware of the high charges you'll likely incur.
- Cash advance APR: Cash advances carry a separate, and often higher, interest rate than purchases or balance transfers. For example, the Citi Double Cash® Card has a 0% intro APR on balance transfers for 18 months. After that, the variable APR will be 19.24% - 29.24%, but a 29.99% variable APR for cash advances. (see rates and fees.)
- Cash advance fee: Your card issuer often charges a cash advance fee, which is typically 3% or 5% of the total amount of each cash advance you request. For example, a $250 cash advance with a 5% fee will cost you $12.50.
- ATM or bank fee: If you use an ATM or visit a bank, you can expect a fee for taking out a cash advance.
- No grace period: Cash advances don't benefit from a grace period. That means you will be charged interest starting from the date you withdraw a cash advance. That's different from when you make a purchase with you card, and the issuer offers a grace period of at least 21 days where you won't incur interest if your balance is paid in full by the due date.
- Separate credit limit: Cash advances often have a separate credit limit that's a portion of your overall credit limit. You may only be able to take out a few hundred dollars.
The cost of a cash advance
Cash advances have numerous terms and fees, as mentioned above, but you may wonder how much the whole thing may cost. Here's an example:
How much a $500 cash advance can cost
| Terms | Cost |
|---|
| Cash advance withdrawal | $500 |
| Monthly payment | $50 |
| Cash advance fee (5%) | $25 |
| Cash advance APR (26.74%) | $72 in interest |
| ATM fee | $2.50 |
| Estimated time to pay off the cash advance | 12 months |
| Total interest and fees | $99.50 |
You wind up paying $99.50 in interest and fees if you took out a $500 cash advance and only paid $50 a month.
Alternatives to cash advances
Taking out a cash advance may seem like a good idea in the moment, but it can quickly lead you to rack up debt. We recommend avoiding a cash advance altogether and opting for some alternative options that have better terms.
- Borrow from family or friends: You can ask family or friends for a loan. While it can be uncomfortable to ask, this can be the most cost-effective way to get the cash you need. Make sure you create a repayment plan to keep your relationship on good terms.
- Take out a personal loan: Personal loans usually offer better terms than a cash advance, and you can have access to more cash if you have good credit. With a personal loan, you usually can pay back the loan at a fixed interest rate that's much lower than the APR charged by credit card issuers.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
A cash advance is a short-term, high-interest loan you can borrow to quickly access money. Most people take out a cash advance against their credit card's available credit limit, but there are other options available, which we'll detail below. Borrowers frequently take out cash advances in an emergency.
What is a cash advance and how does it work? ›
Key Takeaways. A cash advance is the act of withdrawing cash against your credit card limit. You can complete a cash advance at an ATM, in person at a bank or — in some cases — over the phone. You should only use credit card cash advances for emergencies due to the cash advance fee and high APR.
How does a cash advance at work work? ›
Generally, employers who offer such a program give employees either cash or a cashier's check for an agreed-upon amount, and then withhold a percentage of upcoming paychecks to pay off the loan. The employee is not charged interest, so essentially he is simply receiving part of his paycheck early.
How bad are cash advances? ›
High fees and APR: The fees and higher interest rate increase the cost of borrowing, especially if you can't repay the cash advance quickly. Potential damage to your credit scores: Using a large part of your credit limit can raise your credit utilization and hurt your credit scores.
What are three reasons why you should avoid cash advances? ›
Key Points:
- Credit card advances are a very expensive loan.
- Cash advances start accruing interest immediately.
- Credit card advances can quickly put you deeper in debt.
You might be able to pay back a cash advance as soon as it's posted to your account. However, you may need to repay more than you borrowed because many credit cards charge a cash advance fee. Interest can also start accruing daily, leading to a larger balance if you don't pay off the cash advance quickly.
How do I withdraw a cash advance? ›
Insert your credit card into an ATM, enter your PIN, choose the cash advance option, and enter your withdrawal amount. Cash advances can have higher APRs than purchases or balance transfers, and interest starts accruing on them right away. Plus they often have fees.
What are four things you could do to avoid cash advances? ›
To avoid using a cash advance in non-emergency situations, it can help to familiarize yourself with other ways to cover expenses.
- Build your savings. ...
- Ask about a payment plan. ...
- Consider a line of credit. ...
- Apply for a personal loan.
The interest rate for cash advances is usually higher than for regular purchases. For example, the interest rate for regular purchases may be 19%, but it may be 22% for cash advances. A cash advance may be a very expensive way to borrow money. Before you take out a cash advance, consider a cheaper way to borrow.
What happens if you don't pay a cash advance loan? ›
Legal Actions and Lawsuits
This money judgment allows the payday lender or debt collector to pursue further methods to collect the money and fees you owe. The lender or collector can garnish your wages or benefits to pay the debt or place liens on your property.
Cash advances are typically capped at a percentage of your card's credit limit. For example, if your credit limit is $15,000 and the card caps your cash advance limit at 30%, your maximum cash advance will be $4,500.
How to pay off cash advance? ›
The cost of a cash advance is added to your credit card balance. This means you can pay off the cash advance amount in the same way you'd make any other credit card payment.
Is it bad to ask for a cash advance? ›
Interest Rates Are Higher for Cash Advances
Many people are under the impression that a cash advance is treated the same way as everyday purchases, but this usually isn't the case. On top of the cash advance service fee, you'll also be charged a higher interest rate.
What is the difference between a cash advance and a payday loan? ›
Cash advances and payday loans both provide quick access to cash. A cash advance may come through your credit card issuer or cash advance app. Payday loans tend to have higher interest rates and fees than cash advances.
How can I get cash advance instantly? ›
- Chime: Best for current Chime customers.
- Brigit: Best for small advances and budgeting help.
- Empower: Best for fast cash.
- EarnIn: Best for large advances.
Not being limited to your bank is a huge advantage. However, it should be noted that not all banks will accept your request for a withdrawal and most out-of-network banks will charge a fee for the withdrawal. Check with the bank for details.
