What is a Cash Advance?

what is a cash advance

Last Updated on 11/18/2017 by GS Staff

Q:

What is a cash advance?

A:

When you use a credit card at an ATM, it is known as a cash advance. A cash advance allows you to borrower cash against your credit card. You must pay back the amount you borrowed plus any accrued interest and fees. The cash is obtained at an ATM or inside a financial institution like a bank.

How Much Can you Withdraw?

You cannot go crazy and withdraw endless amounts of cash using your credit card. If your credit card allows cash advances, you will have a cash advanced limit associated with your account. This puts a limit on how much cash you have available to withdraw.

The cash advance limit is commonly less than your credit limit. For example, I just looked at a Chase credit card statement that showed a $2,000 credit limit but had a cash advance limit of only $400. Essentially, this person could only borrower $400 as cash.

You can usually find your cash advance limit by viewing your most recent credit card statement or by accessing your account online.

Cash Advance Interest

You may want to think twice about taking a cash advance because of the cost to borrower this money. Cash advances typically have a much higher interest rate compared to purchase charges. For example,  the Chase credit card I mentioned earlier has a 14.74% annual percentage rate (APR) for purchases. However, this card has an enormous 25.74% APR for cash advances.

Below we have provided a sampling of the interest charges of a selection of popular credit cards.

Credit CardAPR for Cash Advances
American Express Blue 25.99%
Barclaycard CashForward25.99%
Capital One Quicksilver23.74%
Citi Double Cash Card25.99
Chase Sapphire Preferred25.74%
Discover it®25.74%
Mastercard Titanium Card25.99%
Wells Fargo Cash Wise Card24.74% to 26.74%
Rates are variable. Check the most recent terms for the latest cash advance APR.

You might be thinking that taking a cash advance isn’t so bad if you pay off the balance in a few weeks or within the month. However, the grace period allowed for purchase transactions typically does not exist for cash advance transactions.

When you make a purchase transaction, the creditor gives you a grace period of at least 21 days to payoff the balance before interest is charged. Unfortunately, creditors throw the grace period out the window when it comes to cash advances.

The interest on cash advance transactions commonly starts the day the advance takes place. You should try to pay off your cash advance as soon as possible to lessen the burden of the interest charges.

Cash Advance Fees

Outside of the high interest you will likely pay for a cash advance, you will also typically be hit with a transaction fee. These fees can be significant and might deter you from taking a cash advance if the high interest wasn’t bad enough. Here is a sampling of some fees paid for a cash advance:

Credit CardFees
American Express BlueGreater of $5 or 3% of the amount of each cash advance
Barclaycard CashForward5% of each cash advance; $10 minimum fee
Capital One QuicksilverGreater of $10 or 3% of the amount of each cash advance
Citi Double Cash CardGreater of $10 or 5% of the amount of each cash advance
Chase Sapphire PreferredGreater of $10 or 5% of the amount of each cash advance
Discover it®Greater of $10 or 5% of the amount of each cash advance
Mastercard Titanium CardGreater of $10 or 5% of the amount of each cash advance
Wells Fargo Cash Wise CardGreater of $10 or 5% of the amount of each cash advance

In addition to the transaction fee, the ATM or financial institution where you take the cash advance may also issue a fee for using their service. For example, an ATM might charge between $2 to $4 as a service fee for using the machine.

How To Make An ATM Cash Advance

Taking a cash advance is not recommended, however, sometimes there is no choice. If you need to borrower cash and have no other viable options, a cash advance can quickly help in an emergency.  Here is how you make a cash advance from an ATM:

  • Obtain a personal identification number (PIN) from the credit card company. Sometimes this PIN is provided when you open the credit card account. You may need to call customer service or obtain it through your online account.
  • Once you have a PIN associated with your credit card, take your credit card to an ATM. Insert the card into the machine like you would a debit card.
  • Enter the four digit PIN.
  • Select “withdrawal” on the screen.
  • Select “credit card” for the account that you want to withdraw cash.
  • Enter the amount of the withdrawal.
  • Take your cash and your receipt.

Other Ways To Obtain A Cash Advance

An ATM is not the only way to obtain  a cash advance. Here are some other methods to receive a cash advance:

  • Bank Teller: A bank that accepts the type of credit card you hold will likely be able to assist you in completing a cash advance through a teller. Present the credit card and your identification to the teller. State you would like to obtain cash from the card. The teller will process your transaction and give your requested cash.
  • Check: Credit card companies often issue checks in the mail without you even requesting them. If you were not issued checks, you can contact your creditor and ask them to send you them. Once you have the checks, you can complete them as you would a blank check from your checking account and present it as payment. If you need cash, write the check out to cash and cash the check.

Paying Off Your Cash Advance

We have already discussed a few disadvantages of taking a cash advance. But wait, there’s more.

If you look at your credit card statement, there will likely be a section for the purchase transaction balance and another area for the cash advance balance. As we talked about earlier, the cash advance balance will have a much higher interest rate than the purchase transactions.

Now, let’s assume you have a $500 purchase transaction balance and a $500 cash advance balance. Assume you make a $200 payment, where do you think the credit card company will apply apply the payment?

In most cases, the payment is applied to the lowest interest balance first (the purchase transaction balance). Once that balance is paid off, the remaining payments will be applied to the higher cash advance balance.

Given this information, you should be cautious about obtaining a cash advance if you already have an existing balance that you are unable to pay off. It is hard enough to battle to pay the approximate 15% interest on purchase transactions. Add a 25% cash advance charge and things become much more difficult.

Final Thoughts

What is a cash advance? It is a raw deal, in most cases, when you factor in the approximate 25% APR, transaction fees, and ATM/banking fees. You should use a cash advance as a last resort when you need cash instantly. If you need to take a cash advance, try to pay back what you borrowed as soon as possible