Credit Card Basics

What Is a Cash Advance?

So you need money ASAP for an unexpected expense, and your savings account balance is too low to take the hit. To help you get by in a jam, you might consider using a cash advance. A cash advance is essentially a short-term loan provided via your credit card.

While it's usually easy to take out a cash advance, the interest rates and fees can be high, and it could harm your credit. But if you have a financial emergency and you know you can repay it quickly, it could be a worthwhile option. Here's what you need to know before you take out a cash advance.

How a Cash Advance Works

Most credit cards allow you to use your card to borrow a certain amount of cash as an advance. Your cash advance limit may be a few hundred dollars or thousands of dollars, but you likely can't borrow up to your regular credit limit. You can find your cash advance limit on your credit card statement or by contacting your card issuer.

Because you're borrowing the money, rather than withdrawing cash from a checking account where you already have the funds, the credit card company will typically charge fees and interest on the cash advance—and the interest is usually much higher than the rate for regular purchases. Taking out a cash advance can also ding your credit if it pushes your credit utilization ratio, or percentage of available credit you're using, too high (more on that below).

If you have multiple cards, choose the one with the lowest cash advance interest rate or the one you can pay off the fastest. Also, avoid taking an advance on a card that already has a high balance.

Where to Get a Cash Advance

If you've decided a cash advance makes sense for your situation, there are a few different ways you can get one:

In person: Visit your bank or credit union and ask to receive a cash advance with your credit card. Keep in mind that your bank may charge you a fee for the advance, in addition to the separate fees and interest your credit card company will charge.

At an ATM: If you have a PIN for your credit card, you can insert your card at an ATM, enter your PIN and receive cash. However, most ATMs limit you to a certain dollar amount or number of transactions per day, so if you need to withdraw more than a few hundred dollars, it may be best to go into your financial institution to get the advance. If you didn't receive a PIN when you got your credit card, call your credit card issuer and ask for one. Keep in mind that it may take a few business days to get one, so if you anticipate having future cash advance needs, request a PIN as soon as possible.

Convenience checks: Many credit cards provide convenience checks that make it easy to get a cash advance. You fill out a convenience check the same way you would a regular check, then cash or deposit it at your bank or credit union. You can withdraw more this way than with an ATM.

How Much Does a Cash Advance Cost?

Credit card cash advances usually come with a steep price tag. Typically you'll pay more interest than you would on a standard credit card purchase—sometimes several percentage points more: Interest rates for cash advances can top 25%. Before you take out a cash advance, read your cardholder agreement and know all of the associated costs.

In addition to high interest rates, here are other ways cash advances can rack up costs:

  • Your credit card may charge upfront fees of $20 or more each time you take a cash advance.
  • The bank or credit union where you get the cash advance may also charge service fees.
  • With a cash advance, interest charges often begin accumulating immediately, without the benefit of the one-month grace period you get to repay regular credit charges before they are hit with interest.
  • If you take out a cash advance on a card that already has an outstanding balance, your payments may be used to repay the purchase balance (at its lower interest rate) before they are used against the costlier cash advance balance.

How a Cash Advance Impacts Your Credit Score

Like any form of borrowing, a cash advance can affect your credit score. While a cash advance from a credit card doesn't show up as a separate item on your credit report, it can hurt your credit score if it pushes your credit utilization ratio above 30%.

Credit utilization ratio is the amount of debt you currently owe on your revolving credit accounts (such as credit cards) divided by the total amount of revolving credit you have available. To stay in good standing with lenders, you should aim to keep your credit utilization ratio under 30%. If a cash advance pushes your ratio above that, it can make you look riskier and overleveraged and cause your score to fall.

Alternatives to Credit Card Cash Advances

Because the costs of borrowing money using a credit card cash advance can be so high, consider alternative options first.

  • Friends and family: Ask if you can borrow needed cash from a loved one. Just be sure to create a formal agreement to repay the loan—and stick to it.
  • Lending circle: A form of friends and family borrowing, lending circles allow you to borrow money for little to no interest, and may even help you build your credit. Mission Asset Fund, a nonprofit based in San Francisco, provides lending circles and reports to the three credit bureaus (Experian, TransUnion and Equifax) to help users improve their credit scores.
  • Debt consolidation loans: Debt consolidation loans consolidate your existing debt into one new loan, usually at a lower interest rate than your existing debt, allowing you to make one monthly payment instead of many to several different lenders. This alternative can help you keep more cash in your pocket each month to help eliminate the need for a cash advance.

If you're not successful with any of the above options, there are two other avenues to consider, though they don't offer many advantages over cash advances and could end up costing you even more.

  • Short-term loans from online lenders: If you don't have a credit card, you can consider using an online business like LendUp or RISE to obtain a cash advance that's not connected to a card. These are essentially small, short-term loans you must repay quickly. They're similar to payday loans, though they don't necessarily require a single repayment on payday. Still, the fees can be very steep. For example, LendUp's site shows an example for a $200 cash advance. The finance charge is a whopping $35.20, so you'd have to repay $250.94—which translates to an APR of 459%. As you can see, like payday loans, these loans should only be used in a true financial emergency when you've exhausted all other possible options.
  • Payday loans: These short-term loans can cover your cash needs until you get your next paycheck, but at a steep cost. Payday lenders typically charge hefty fees as well as triple-digit annual percentage rates (APRs). They can be difficult to repay and can end up getting you into more trouble if you're not careful, so only consider payday loans as a last resort.

An Option of Last Resort

If you have a credit card, cash advances are usually fast and easy to obtain. But due to the sky-high interest rates and fees, the cost of borrowing is steep. Only turn to a cash advance if you're in a true financial emergency and have exhausted other more affordable options, and if you know you can repay it quickly.