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Credit card cash advances might look tempting in an emergency, but they come with high interest rates and fees that can leave you in a worse financial spot. We break down how credit card cash advances work with handy alternatives to help you get the cash you need without unwanted costs.
Around 73% of Americans have a credit card by the time they turn 25.
You might be the same.
When your bank account is empty (or nearing empty), the convenience and flexibility of using your credit card for a cash advance can feel like a lifesaver.
But there’s a catch…
Credit card cash advances come with interest rates that can make your head spin.
Unlike a credit card purchase which offers a 21-day (or more) grace period, your bank or financial institution will start charging interest on your credit card cash advance IMMEDIATELY.
It’s in the credit card company’s interests to keep you in debt (since that means paying more in interest and fees).
So if you’re looking for alternative ways to access fast cash, read on.
The problem with credit card cash advances
A cash advance is pretty much a short-term loan offered by your credit card issuer.
Getting cash is easy whether you’re face-to-face with a bank teller or using an ATM. This ease masks the fact that you’re borrowing money against your card’s line of credit – which comes with hefty fees that can outweigh the benefits.
Most credit card issuers will offer between 20% and 30% of your available credit limit. Chase, the largest credit card issuer in America, charges a sky-high 29.99% APR for cash advances on most of its cards! Oh yeah, and there’s fees on top of that as well.
Here’s a breakdown of the differences between a credit card cash advance and a regular credit card purchase:
✗ Cash advance fees: You’ll typically pay a one-time fee when you take your advance. Fees post to your account the same day as the cash advance transaction and usually range from 3% to 5% of the amount. For example, if you take out a $100 cash advance, the fee of $3 to $5 will be charged to your account. Both Chase and Capital One charge a 5% fee, but watch out on smaller cash advance amounts – Capital One has a $5 minimum, while Chase will charge you at least $10!
✗ Higher interest rate: Most cards charge a higher APR for cash advances than for regular purchases. APRs can range from 17.99% to 29.99%!
✗ No grace period: Credit card purchases normally enjoy a grace period of at least 20 days before you’re charged interest. Most cards will not offer a grace period on cash advances. This means you’ll be paying interest from the first day your cash advance is charged to your account.
✗ Limited withdrawal amounts: You can’t take out more cash than the amount of credit available on your card. If your card is already maxed out and you’re facing repayments, you won’t be able to withdraw cash at all.
✗ Potential impact on credit score: A credit card advance won’t directly impact your credit score. But, the amount of credit you’re using can affect your credit utilization rate (your percentage of credit used from the total credit available to you) which is responsible for 30% of your credit score.
| 🤓 Overdraft Apps Tip: Using your credit card at the ATM is just one kind of advance. Check your card issuer’s terms and conditions to see what they define as a cash advance. This may include cash withdrawals at a point of sale or transfers from your line of credit to your checking account. |
How much does a credit card cash advance cost?
Credit card cash advances come with plenty of strict terms and fees.
There’s no doubting the convenience of whipping out your credit card and walking away from an ATM with a pocket full of cash. But you’ll likely end up paying more interest and fees than you would if you’d used your credit card to make a purchase.
Here’s an example of how much a credit card cash advance might cost when you factor in all the extra fees and charges:
If you take out $1,000 with a 5% fee (that’s $50) and 22.5% interest rate, your one grand withdrawal can get pricey. With $50 per month repayments, it will take two years and two months to pay back your advance with over $317 paid in interest and fees.
In short, the cost of a credit card cash advance is a high price in exchange for access to quick cash.
Are there any alternative cash advance options?
Yes!
You should only consider taking out a credit card cash advance in an absolute emergency.
In most cases, withdrawing cash against your line of credit is still better than requesting a predatory payday loan (which can charge up to 400% APR). If you do have some flexibility or time, it’s best to seek out alternative cash advance options.
Check out a few of our recommended strategies for getting the cash you need without getting stuck in a cycle of high-interest repayments.
⇀ Overdraft your checking account
Overdraft fees can cost you $35 (though many banks have begun reducing overdraft fees after years of pushback and consumer frustration).
However, pushing your account balance into negative to get extra cash can be a cheaper option than advancing on your credit card.
Check out more creative overdraft strategies:
- ATMs That Let You Overdraft (Find Your Nearest Cash Machine)
- How to Overdraft Your Debit Card on Purpose (Easy Cash Method)
- Free Gas Hack (Overdraft Your Debit Card at the Gas Station)
⇀ Borrow money from a cash advance app
Cash advance app providers are fintech companies, not banks. This means they don’t charge high interest like traditional payday lenders. Instead, the booming cash advance app market gives you the freedom to borrow cash with low or NO fees.
These apps make their money on subscription fees, tipping (which isn’t mandatory), and other fees such as accessing your money instantly instead of waiting up to three business days.
Check out our top cash advance app guides:
- Best Cash Advance Apps for Gig Workers
- Best Cash Advance Apps for Bad Credit
- How to Borrow $5,000 From Your iPhone
⇀ Access a credit builder loan
Most credit builder loans set aside a sum of money in a locked savings account. By making fixed payments over several months, you can strengthen your credit history and receive access to your savings (minus interest and fees paid). However, some credit builder loans give you money upfront. Choosing a loan option with access to immediate cash can be a win-win if you’re also dealing with a subpar credit score.
Check out the top credit builder loans that offer cash instantly:
- Enjoy several hundred dollars with MoneyLion’s Credit Builder Plus
- Get Creative with up to $200 in Overdrafts on the Chime Credit Builder Card
Final thoughts and what to do next…
A credit card cash advance can be a helpful solution in an absolute emergency. But unless you need cash within seconds to avoid trouble or to cover a serious problem, you’re better off going with an alternative option.
Life is expensive enough as it is without sky-high interest rates and fees that quickly add up.
As with any financial decision, be sure to weigh the benefits against the costs and only use your credit card to withdraw cash or borrow against your line of credit if there’s no other option.
If you do get a cash advance, make sure you have a plan in place to pay it back quickly so you don’t end up in more debt.
Check out these resources to avoid falling into bad money habits:
- How to use Cleo’s ROAST MODE to become a financial pro 🔒
- Low Income Loans: What are they and how to get one for yourself 🔒
- Five Banks That Let You Overdraft Immediately 🔒
WAIT! Why borrow quick cash when you can earn it?!
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