The idea of credit, or borrowing money to buy something now and pay for it later, has been around for thousands of years. In the 1950s, that concept took flight in the form of the credit card. Today, using credit cards is a popular way to purchase and spread out payments over time. They can also allow you to access cash by taking a cash advance.
What is a cash advance on a credit card, and how does it work? In this article, we’ll cover those questions and provide a few details to be aware of, including potential alternative forms of cash advances.
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How does a cash advance work?
Taking a cash advance from your credit card is like taking a short-term loan from a financial institution or lender. Only, in this case, it means borrowing money from your credit card’s approved credit limit. It’s not free money; this type of cash advance comes with fees and interest rates that you pay back on top of the money you borrow.
4 ways to get a cash advance on a credit card
Here are a few ways to get a cash advance on your credit card.
1. ATMs
Much like a debit card, you can use your credit card to get cash from an ATM. Usually, you need to set up a PIN in advance. If you haven’t, fear not. There are other ways to get cash from your card without a PIN.
2. Online
Some credit cards allow you to transfer money to your bank account online.
3. In person
A bank in your credit card network (Visa® or Mastercard®) can facilitate a cash advance.
4. Convenience checks
Some credit cards issue checks linked to your account, and you can write one to yourself for cash.
How much can you withdraw using a credit card cash advance?
The amount you can withdraw is usually limited to a percent of your overall credit limit. For example, if your cash advance cap is 30% and your total credit limit is $10,000, you can take $3,000 in cash advance.
What are the fees associated with cash advances?
Before taking a cash advance, familiarize yourself with the fees.
- Transaction fee: Most credit cards charge a flat fee or a percentage of the cash advance upfront.
- APR: You pay interest on the money you borrow, but beware because many cards charge a higher APR for cash advances than standard purchases.
- Other fees: There can be additional fees, such as an ATM surcharge or extra fees if you use the credit card company’s convenience checks to take a cash advance.
When to use cash advance on a credit card
Given the fees associated with taking one, a cash advance on a credit card should probably be saved for when you need it. What is a cash advance on a credit card best used for? People typically use theirs on unexpected medical bills, car repairs, and emergencies.
When you urgently need funds and can’t access other sources, a cash advance on a credit card can be a solution.
Factors to consider before taking out a cash advance
Here are a few considerations to think about before taking a cash advance.
1. Interest rates
Rates are typically higher for cash advances when compared to regular credit card purchases, and they start accumulating immediately. This fact is especially important for retired people who don’t have the income to cover the interest.
2. Cash advance fees
Most credit cards will charge a flat fee or a percentage of the cash you take in advance.
3. Credit limit
Your cash advance will typically be capped at a percentage of your overall credit limit, so it’s a good idea to know what it is and leave yourself some room. Don’t max out your credit with your cash advance.
4. Repayment plan
Ensure you understand the repayment timeframe and all the costs associated with the advance.
Alternatives to a cash advance on a credit card
A cash advance on your credit card isn’t your only option. There are other types of cash advances you should be aware of.
1. Personal loan
A personal loan from a bank or other lender may often have lower interest rates and more favorable terms than a cash advance on a credit card.
MoneyLion can help you find personal loan offers based on your background and the info you provide. You can get matched with offers for up to $50,000 from top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.
2. Peer-to-peer lending
Borrowing money from individual investors often offers competitive interest rates and flexible repayment options.
3. Cash advance apps
Accessing these apps can make a portion of your paycheck available before you are paid.
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4. Line of credit
Banks and other financial institutions offer lines of credit similar to a credit card but typically have lower interest rates.
5. Borrowing from family or friends
Friends and family might be willing to lend you money with lower interest rates and favorable repayment terms.
A Cash Advance From Your Credit Card Is There When You Need It
A cash advance on your credit card can be a helpful way to access money when you need it most. Before you commit, be aware of fees and other potential cash advance alternatives.
FAQ
Can I get a cash advance on any credit card?
Most credit cards offer some form of cash advance, but you must check with your credit card provider for details on your card.
Can I use a cash advance to pay off other debts?
Yes. Once you access cash, it is yours to spend as you want. However, given the high fees associated with cash advances, make sure it makes financial sense to move money from one debt provider to another.
Does taking a cash advance affect my credit score?
While taking a cash advance doesn’t directly impact your credit score, it can increase a measurement that does affect your credit score: your credit utilization ratio. This is how much you owe relative to the total credit for which you are approved.
