A cash advance on a credit card is a short-term loan against your credit limit, taken as cash rather than a purchase
When you take a cash advance, your credit card issuer lends you money up to a portion of your available credit. You walk into an ATM, call your card issuer, or visit a bank branch and withdraw cash. The money hits your account when ready. But unlike a regular purchase, a cash advance comes with its own interest rate — usually much higher than your purchase rate — and begins charging interest the same day you withdraw it, with no grace period.
The mechanics are straightforward: you borrow against your credit line, you owe the money back, and the issuer charges you for the privilege. What makes a cash advance different from a purchase is the cost structure. There is no free period to pay it back interest-free. Interest accrues from day one.
Key Takeaways
- Cash advances charge a separate interest rate from purchases, typically 3 to 5 percentage points higher, and interest starts accruing when ready with no grace period.
- Most cash advances also carry an upfront fee of 3 to 5 percent of the amount withdrawn, charged at the time you take the money.
- Your cash advance limit is often lower than your purchase credit limit, sometimes as low as 20 to 50 percent of your total available credit.
- Cash advances report to credit bureaus as debt and can lower your credit score by increasing your overall credit utilization ratio.
How the fees and interest rates work
A cash advance typically costs you money in two ways: an upfront fee and ongoing interest. The upfront fee is usually 3 to 5 percent of the amount you withdraw, charged when ready. If you withdraw $500, you might pay $15 to $25 just to get the cash. This fee is added to your balance right away.
The interest rate on a cash advance is separate from your purchase rate. If your card charges 18 percent APR on purchases, the cash advance rate might be 24 or 28 percent. The issuer sets both rates independently, and the cash advance rate is almost always higher. Interest begins accruing the day you withdraw the money — there is no 21-day grace period like there often is for purchases. This means even if you pay back the cash advance within a week, you will owe interest for that full week.
The combination of the upfront fee plus the daily interest makes cash advances expensive for anything longer than a few days. A $500 cash advance at 5 percent fee plus 25 percent APR costs you $25 upfront, then roughly $3.42 per day in interest. After 30 days, you will have paid about $127 in fees and interest alone.
Where you can get a cash advance
You have several options for withdrawing a cash advance. The most common is an ATM: insert your credit card, enter your PIN, and withdraw cash up to your cash advance limit. ATMs at your issuer's bank are usually free, but ATMs at other banks may charge an additional fee of $2 to $5.
You can also visit a bank branch in person and ask the teller for a cash advance. This works the same way — they pull from your credit line and hand you cash. Some card issuers also allow you to transfer a cash advance to your bank account by phone or online, though this is less common.
A few card issuers offer balance transfer checks, which are essentially pre-written checks drawn against your credit line. You write the check to yourself or a third party, deposit it, and the amount becomes a cash advance on your card. These also carry fees and high interest rates.
Your cash advance limit versus your credit limit
Your cash advance limit is separate from your purchase credit limit and is usually much lower. If you have a $5,000 credit limit, your cash advance limit might be $1,000 or $1,500. Some issuers set it at 20 to 50 percent of your total available credit; others use a fixed amount regardless of your overall limit.
You do not choose this limit — your issuer sets it based on your creditworthiness and their own policies. You can call your card issuer and ask what your cash advance limit is. Some issuers allow you to request a higher limit, but this is not may provide. The limit exists partly as a risk management tool: cash advances are riskier for issuers because they are unsecured loans with no collateral, so they cap how much you can borrow this way.
How a cash advance affects your credit score
A cash advance shows up on your credit report as debt, just like a purchase does. It counts toward your overall credit utilization ratio — the percentage of your available credit you are using. If you have a $5,000 limit and take a $1,000 cash advance, your utilization jumps to 20 percent. Credit scoring models penalize high utilization, so a large cash advance can lower your score by 10 to 50 points depending on your current utilization and the scoring model used.
The impact is temporary if you pay off the cash advance quickly. Once the balance drops, your utilization falls and your score typically recovers. But if you carry the cash advance balance for months, the ongoing high utilization will keep your score depressed.
Payment history matters too: if you miss a payment on a cash advance, it reports as a missed payment on your credit report and damages your score for seven years. This is one reason to treat a cash advance as urgent debt to repay.
When a cash advance might make sense
A cash advance is rarely the cheapest way to borrow money, but there are narrow situations where it might be the only option available. If you need cash urgently and have no other source — no savings, no access to a personal loan, no friends or family to borrow from — and you have a credit card, a cash advance gets you money the same day.
The math only works if you can repay it within days, not weeks. A $500 cash advance repaid in three days costs roughly $10 in interest plus the upfront fee. The same advance repaid in 30 days costs $127. The longer you carry it, the more expensive it becomes relative to other borrowing options.
Some people use cash advances to move money between accounts quickly, though this is usually a sign of cash flow problems that a cash advance will make worse, not better. If you are considering a cash advance, first explore whether a personal loan, a line of credit, or a 0 percent balance transfer card might be cheaper.
Alternatives to a cash advance
A personal loan from a bank or credit union typically charges 6 to 36 percent APR with no upfront fee, making it cheaper than a cash advance for any amount you plan to carry for more than a few days. The downside is that approval takes a few days, not minutes.
A 0 percent balance transfer card lets you move debt from one card to another at no interest for 6 to 21 months, though you usually pay a 3 to 5 percent transfer fee upfront. This works only if you already have debt on another card and want to move it, not if you need new cash.
A line of credit from your bank, if you have one, usually charges lower interest than a cash advance and has no upfront fee. Some employers offer paycheck advances or emergency loans to employees. If you have savings, using that money avoids interest altogether, though it leaves you without an emergency cushion.
Frequently Asked Questions
Can I use a credit card cash advance to pay another credit card bill?
Technically yes, but it is expensive and usually a sign of deeper financial trouble. You would pay the cash advance fee plus high interest on borrowed money just to move debt around. If you are juggling multiple card balances, a balance transfer or a debt consolidation loan would be cheaper.
Does a cash advance hurt my credit score when ready?
Yes. The moment you take the cash advance, it increases your credit utilization ratio, which can lower your score by 10 to 50 points within days. The impact is largest if your utilization was already high. The score recovers once you pay off the balance.
What happens if I cannot pay back a cash advance?
The balance stays on your card and interest keeps accruing. If you miss payments, it reports as a missed payment on your credit report and can trigger late fees, a higher interest rate on your entire card, and eventually collections action. The debt does not go away.
Is there a way to avoid the cash advance fee?
No. The fee is mandatory and charged at the time you withdraw the money. Some cards offer slightly lower fees than others — 2 percent instead of 5 percent — but you cannot avoid it entirely. The only way to avoid the fee is to not take the cash advance.
Can I take a cash advance on a debit card?
No. A debit card draws from your own bank account, not a line of credit. What you can do with a debit card is withdraw cash from an ATM for free (at your bank's ATMs) or use it to make purchases. If you need a cash advance, you need a credit card.