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What Exactly Is a Credit Card Cash Advance?

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While usually not Plan A, a credit card cash advance can be an option if you need money in a pinch and just don’t have the cash on hand.  If you don’t have enough cash in your checking, saving or emergency account to cover anything from basic needs to emergency or one-time expenses that cannot be paid for with a credit card, there is another option. Whether taking out a cash advance or payday loan seems like a saving grace or terrible last resort, it is important to understand these options. Here’s what to know so you can decide if it is a smart financial move for you.

What Is It?

A cash advance is a loan service provided by many credit card companies. It allows cardholders to withdraw cash through an ATM, bank withdrawal or “convenience” check. You can find the details in the terms of your credit card. You are typically allowed to withdraw sums ranging from $50 to a few hundred. You may have a different cash advance limit than your usual credit card limit.

How It Works

While it may feel similar, taking a cash advance from your credit card is very different than hitting the ATM with your debit card. It shows up like a charge on your account or is sent to you by mail in the form of a check. Cash advances are more like short-term loans and come with their own interest and fees (typically higher than a bank loan or regular credit card purchase). Each card has different rules and features, so it’s important to check with your provider for the specifics.

Pros & Cons

A cash advance is easy to get and doesn’t require you to have money available in any account. It is convenient and simple, but usually costly. The fee generally falls between 2% and 5% of the amount of the cash advance. Very few cards don’t charge this fee. There is also high interest associated with a cash advance, usually much more than regular interest on a credit card. You also start racking up interest as soon as you get the cash (not the end of the month), as there’s often no grace period. Taking out a cash advance can also raise your credit utilization rate (your balance in comparison to your limit), one of the five main factors affecting your credit scores. (You can see how your credit utilization is impacting your credit scores for free on Credit.com.)

It is wise to consider all other options like personal bank loans, borrowing from family or friends and hitting up your savings account. While a cash advance can help you fund a necessary purchase you can’t currently afford, it is a very expensive short-term loan. It’s important to examine your finances carefully and do what is right for you. If you do choose to get a cash advance, it’s a good idea to repay it as quickly as you can and to assess your finances overall and get yourself in better shape so you don’t find yourself needing another one down the road.

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