What is a credit card cash advance?
A cash advance on your credit card may seem like a quick way to get money, but there are fees and risks to consider
Read, 3 minutes
A credit card cash advance is a withdrawal of cash from your credit card account. Essentially, you’re borrowing against your credit card to put cash in your pocket. However, there are costs to taking a credit card cash advance and, in some cases, limits on the amount you can withdraw.
Here, Better Money Habits®asks Lora Monfared, Managing Director, Consumer Card Products at Bank of America, about the key considerations of a credit card cash advance.
How does a cash advance work?
“Yes, you can use a debit or credit card to take out money at a bank or ATM, but while the experience of using a credit card to withdraw cash may seem similar, the process is actually very different. Unlike a debit card withdrawal, in which you’re accessing your own funds, a credit card withdrawal – also known as a cash advance - is really borrowing money.” says Lora Monfared, Managing Director, Consumer Card Products at Bank of America. "This comes with a whole new set of considerations. Cash advances generally have a transaction fee (based on the amount of the transaction), and a higher annual percentage rate (APR) which calculates interest starting at the time of the withdrawal. There also may be a limit on how much cash you can access within your credit line.”
Using your card for cash isn't the only form of cash advance, though. Other ways to access cash from your credit card would be to use convenience checks that some credit card companies provide with the credit card. “If you deposit a convenience check to use for cash, the transaction is also considered a cash advance, which subjects you to similar fees and immediate interest accrual" says Monfared.
Lora Monfared | Managing Director Consumer Card Products, Bank of America
When to consider using a cash advance
Cash advances can be an important source of funds in an emergency. Although you don’t want to plan on using cash advances regularly, you might use one if you are short on funds and unable to charge an expense. However, always be sure to consider all your options given the costs.
Why are cash advances so expensive?
It’s a good idea to consult your credit card agreement to make sure you know the rules and fees. Here are a few costs to consider:
How to lower cash advance fees
Some transaction fees are a percentage of the overall advance; in this case, you could limit the fee by withdrawing only as much as you need. Other transaction fees may be a flat rate or a combination of a flat rate and a percentage of the transaction. In this case, if you take all the cash you think you’ll need at once instead of conducting multiple smaller transactions, you’ll pay the flat fee only once.
Unlike standard credit card purchases, which offer a grace period between the purchase and the payment due date when interest kicks in, a cash advance transaction generally begins accruing interest immediately. That means paying off your cash advance in a timely manner is crucial to saving you money in the long-term.
If you plan to take out a cash advance, you may want to look for a card with lower cash advance fees and a more competitive interest rate, as these can vary by issuer.
4 ways to avoid taking a cash advance
 | Make purchases with your credit cardYou can often limit interest and transaction fees by charging purchases to your card rather than getting a cash advance. | |
 | Build an emergency fundOccasionally, you’ll need to pay for an unexpected expense. Your emergency fund can help you cover unforeseen costs and avoid using credit card cash advances. | |
 | Monitor your balanceIt’s a good idea to keep track of your account balance so that you’re not caught by surprise. If you bank online, you can set up text or email alerts to notify you if your balance drops below a set amount. | |
 | Avoid unnecessary purchasesAsk yourself if the purchase you intend to make with your cash advance is worth the extra fees or if it can wait. |
