Cash Advances from Credit Cards: What You Need To Know

When you're in a bind and need some quick cash, one option is to take out a cash advance with your credit card. Still, before you do that, there are some things you need to know.

How Cash Advances Work

A cash advance is a service provided by most card issuers that allows cardholders to withdraw cash from their credit card account.

When you get an advance, you're still borrowing money from your line of credit, and will have to pay it back with interest on the amount borrowed.

The amount you'll be able to borrow via cash advances depends on your card's limit. Each bank has its own rules about this amount, typically capping it at a percentage of your credit limit.

Cardholders should also be aware that credit card cash advances do not usually earn rewards, points, or cashback on your credit card as regular purchases do.

How To Get a Cash Advance From Credit Card

Different issuers offer specific terms, but there are three main methods:

1. Bank: You can get an advance from a bank teller at a physical branch; you'll have to provide identification, so don't forget to bring that with you.
2. ATM: You can use your credit card to withdraw money at an ATM, as you would with a debit card associated with your checking account. All you have to do is enter your PIN and receive cash from your credit card.
3. Check: Some credit card issuers will also provide you with convenience checks. To get cash using a check, fill it out yourself, and cash it at your bank. However, these checks also come with fine print, so get familiar with all the terms and conditions before you use this to get an advance.

Advantages and Disadvantages of the Approach

On the plus side, a cash advance can give you access to quick cash when you need it most. If you need to cover some urgent medical expenses or fix your car, taking out some money from an existing line of credit might be quicker and easier than applying for a personal loan.

Furthermore, if used responsibly, a cash advance can help you avoid costly overdraft fees or late payments. Just be sure to repay the loan as soon as possible to avoid high-interest charges. Overall, a credit card with a cash advance can be a helpful tool - but it's essential to use it wisely.

Speaking of using things wisely, there are a few things to consider here. First, keep in mind that taking out a cash advance will likely hurt your credit score in the short term, because it’s essentially a mini-loan impacting your credit utilization ratio.

Secondly, this quick cash is not without fees and interest, so it can be more trouble than it’s worth.

The Costs of Taking Out a Credit Card Cash Advance

Here are some of the fees associated with taking out a cash advance:

Cash Advance Fee

This fee is charged by the credit card issuer and is typically a percentage of the amount you borrow, but it can also be calculated as a flat fee. Typically, it ranges between 3% and 5% of the total amount borrowed. A flat fee will likely be either $5 or $10.

APR

Interest and APR are often thought of as the same things. However, you will likely find that cash advance rates are higher than those for other credit card purchases, sometimes even doubled, and don’t fall under APR calculations.

Other Fees to Consider

Most credit cards, even those with zero-interest purchases, do not have a grace period for cash advances, which makes them start accruing interest immediately. On top of that, you should also calculate bank fees and any transaction fees that might be associated with using an ATM.

It is advisable to use a cash advance calculator to see how much taking a cash advance will cost you in the end. With some credit card companies, an alternative solution might be the cheaper option.

Alternatives to Cash Advances

Here are some alternatives to consider:

• Personal loans: Personal loans can be a good option if you need cash for a larger expense and can qualify for a low interest rate.
• Start a new credit line: Instead of taking out an advance, you can get another credit card with a higher limit. This way, if an emergency ever does arise and you need to access cash quickly, you have the option to do so and avoid surpassing your cash advance limit or getting high interest rates.
• Home equity loans: If you own your home, you may be able to take out a home equity loan or line of credit. This can be a good option if you need a large amount of cash and have good credit.
• Borrow from friends or family: Borrowing money from friends or family is usually interest-free and can be a good option if you need cash for a short period.
• Dip into your emergency fund: If you have one, it is always better to tap into that than get another loan.