Using debit and credit cards is a quick and easy way to pay for things. But sometimes cash is preferred and when you need it on the fly, your cards can still come in handy. In particular, you can even use your credit card to get money through something called a cash advance.
By tapping into your line of credit, you can still have the benefit of borrowing money to cover an expense and still paying with physical cash if the merchant requires it.
What is a cash advance?
A cash advance is money you borrow with your credit card.
“Examples of cash advances include using your credit card at an ATM, using a cash advance check provided by a card issuer, or also using your credit card for certain cash transactions like gambling, deposits, wire transfers, travelers checks, money orders, etc.,” says Ted Rossman, senior credit card industry analyst at Bankrate.com.
Keep in mind that your credit provider may allow you to withdraw money only up to a percentage of your credit limit. For example, if your card limit is $12,000 and your cash advance limit is 20% of your line of credit, you can borrow a maximum of $2,400 for a cash advance.
How to get a cash advance with your credit card
If you need a cash advance, you can get cash out in no time in three easy steps.
1. Check your credit card agreement for cash advance details
If you must use a cash advance, you should expect high fees and interest rates. The first thing to do is therefore to read your credit card contract to understand the cost of borrowing on your line of credit.
It is also important to know that the refund will work. Typically, your monthly payments will go to your credit card balance first. Any amount in excess of your minimum payment will go to the account with the highest interest rate, which may be your cash advance balance. Consider paying the minimum amount on your credit card to ensure you reduce your cash advance balance. As a result, you can avoid these compound interest charges.
2. Determine how much funds you can withdraw
Check your credit statement to see how much you’ve already used. A good credit utilization rate is 30% or less of your total line of credit. Exceeding this limit could negatively affect your credit score. So, consider other options if you’ve exceeded 30% of your line of credit utilization ratio.
3. Get your cash advance
You don’t have to travel far or wait for approval to get a cash advance. There are three ways to get a cash advance in as little as a few minutes.
- AT M: You can withdraw money from an ATM if your credit card has a personal identification number (PIN). Take your card to an ATM, select the cash advance option and withdraw cash. Keep in mind that you may have to pay an ATM withdrawal fee which hovers around $4.72.
- In person: You can get a cash advance from a physical bank if you don’t have a PIN. All you will need is your credit card and ID.
- Convenience check. A convenience check works like a personal check. However, in this case, you will get a cash advance on your credit card in the form of a check. Call your credit card issuer to request a convenience check. You can then cash the check at your bank or pay directly to a third party.
Advantages and disadvantages of cash advances
Cash advances can be useful if you need cash immediately. However, its high interest rates and fees could end up costing you dearly.
- A credit card cash advance is a convenient solution if you need cash: If you’re short on cash and your resources are limited, a credit card cash advance might be helpful. All you have to do is go to the nearest bank or ATM, and you can withdraw cash in minutes, no questions asked.
- You don’t need to apply for a loan to borrow money: A loan usually requires you to fill out an application and wait for approval from your bank or lender. And most lenders will do a thorough investigation of your credit report, which can impact your credit score. A credit card cash advance is a surefire way to get the money you need without the hassle.
- The cash advance on credit card allows flexible repayments: Although an installment loan requires fixed payments, you will pay your cash advance like a credit card bill. You can pay in full, pay the minimum amount, or somewhere in between.
- A credit card cash advance usually has high fees: APR of your cash advance can range from 25% to 27%, says Mohr. Rossman also mentions that cash advances come with an additional fee of up to 5% of the advance or up to $10, whichever is greater. In contrast, the average APR for a 24-month personal loan is 10.16%, much cheaper than cash advance interest rates.
- Credit cards usually have credit advance limits: Your credit company may only allow you to withdraw part of your line of credit in cash. If you’re buying something expensive, consider alternative options.
- Your cash advance will start earning interest immediately: Credit cards generally have a 21-day grace period, but a credit card cash advance does not. Interest will begin to accrue on your cash advance as soon as you withdraw money. If you know it will be difficult to repay your borrowed money, you should avoid this option.
Other options to consider
A credit card cash advance may be necessary if you are in a hurry. However, alternatives are available if you want to avoid the risk of cash advances altogether.
Use your own funds: Dip into your checking or savings account to make a payment before taking a cash advance. If you don’t need the money right away, consider using the credit on your credit card instead. A cash advance should be your last resort. To avoid using cash advances in the future, create a rainy day fund in a secure, liquid savings account.
Apply for a loan: A personal loan often has lower interest rates and higher loan amounts than cash advance limits on a credit card. If you can wait to hear from your loan provider, consider applying for a personal loan.
Borrow from others. Your first instinct may be to avoid asking friends and family to lend you money. However, asking someone to help you may be cheaper than borrowing money from your credit card company. More often than not, you can avoid paying fees and interest rates as long as you promise to reimburse that person.