What is a Cash Advance?
Did you know that you can use your credit card to get cash with a cash advance? While credit cards are commonly used to buy things when cash isn’t readily available, they can also help you access dollars you need to make a cash purchase, such as when you’re buying a second-hand item from an individual who doesn’t take credit cards.
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However, there are some important differences between getting a cash advance on a credit card and typical credit card purchases. Here are a few things borrowers should know about cash advances.
What is a Cash Advance?
Getting a cash advance means using your credit card to get cash from an ATM or a bank teller, or by moving cash from your credit card to your checking account or by cashing a convenience check. Essentially, you’re borrowing cash from your credit card account instead of using your credit card or withdrawing money from your bank account to make a purchase.
Cash Advance Interest Rates Tend to Be Higher
An important thing to know before getting a cash advance on a credit card is that your typical purchase interest rate may not be the rate you’re charged on your cash withdrawal. In fact, your cash advance interest rate could be significantly higher than the rate you’re charged for other types of credit card use. Refer to your cardholder agreement for more details on your cash advance interest rate.1
Goodbye, Grace Period
While purchases on your credit card come with a grace period (if you pay the balance in full during this time there’s no interest charge), cash advances are handled differently. Interest starts accruing on cash advances from the time you take the money out — there often isn’t any grace period. So, even if you make your payment in full by the due date, you’ll still be charged interest for each day between the day you received your cash advance and the day you made your payment.1
A Cash Advance on a Credit Card Comes With a Fee
Most cash advances on credit cards come with a cash advance transaction fee. Check your cardholder member agreement for details on your particular card. This fee may be a set dollar amount per transaction, or it could be a percentage of the total cash amount you’re taking from your credit card account.
There May Be Additional ATM Fees
Getting a cash advance can be useful in emergencies because you may be able to withdraw cash from your credit card at an ATM, so long as you have your credit card and your PIN (Personal Identification Number). However, this convenience comes with a cost: Some banks may charge additional ATM fees, or have certain restrictions on getting cash advances from your credit card.2
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Foreign Cash Advances Come With Extra Costs
Cardholders trying to get foreign currency cash advances from their American credit cards while traveling may get hit with a double or triple whammy when it comes to transaction costs. Foreign transaction fees plus ATM fees on top of the cash advance fee add up quickly, and this is all on top of the already higher interest rate you may be charged for the cash advance.
Some credit cards come with foreign transaction fees that add anywhere from one to three percent to your cash advance, and there may be additional ATM fees plus the currency exchange. Consider carefully whether or not a cash advance is worth the additional fees it comes with. 2
While a cash advance may be your best option in an emergency situation, it’s important to know the associated costs, interest rate and possible fees before making the decision to withdraw cash using your credit card account.