A cash advance is when you borrow money directly from your credit card issuer, usually at an ATM or bank teller, instead of using the card to buy something
The money hits your account within minutes or hours. But a cash advance is not the same as a regular purchase. Your credit card company charges you a separate fee — usually 3 to 5 percent of the amount you withdraw — just for taking the cash out. On top of that fee, the interest rate on a cash advance is almost always higher than the rate on regular purchases, often 5 to 10 percentage points higher. Interest starts accruing when ready, with no grace period like you get on a purchase.
If you need cash urgently and have a credit card, a cash advance is fast. But the cost adds up quickly, and the debt can become harder to pay off than a regular credit card balance because of how the payments are applied.
Key Takeaways
- A cash advance fee typically runs 3 to 5 percent of the amount withdrawn, charged the moment you take the cash.
- Interest on a cash advance starts right away with no grace period, and the rate is usually 5 to 10 points higher than your purchase rate.
- When you make a payment to your credit card, the money goes to your regular purchases first, leaving the cash advance balance to accrue interest longer.
- A cash advance counts against your credit limit and can lower your credit score by increasing your credit utilization ratio.
- Alternatives like a personal loan, payday loan, or borrowing from family usually cost less or carry fewer hidden fees.
How the fees and interest work
The cash advance fee is a flat percentage of the amount you withdraw. If you take out $500 and the fee is 4 percent, you owe $20 just for getting the cash. Some card issuers cap the fee at a dollar amount (for example, $10 minimum, $50 maximum), so a very small withdrawal might cost you a flat $10, and a very large one might cap at $50 regardless of the percentage.
Interest begins accruing on the same day you withdraw the cash. Unlike a purchase, which usually has a grace period of 21 to 25 days before interest kicks in, a cash advance has no grace period. The interest rate is set by your card issuer and is typically much higher than your purchase APR. If your purchase rate is 18 percent, your cash advance rate might be 28 percent. Check your card's terms or call the issuer to find out your specific cash advance APR.
The total cost depends on how long you carry the balance. A $500 cash advance at 28 percent APR costs roughly $11.67 per month in interest alone, before you pay down the principal. Add the $20 upfront fee, and you are already $31.67 in the hole before you have paid back a single dollar of the original $500.
How payments are applied when you have both purchases and cash advances
This is where cash advances become especially expensive. When you make a payment to your credit card, the card issuer applies it to your balances in a specific order set by law. Payments go to the lowest-interest balance first — which means they go to your regular purchases before they touch your cash advance.
Here is a concrete example: You have a $1,000 purchase balance at 18 percent APR and a $500 cash advance at 28 percent APR. You make a $200 payment. That $200 goes entirely to the $1,000 purchase. Your cash advance keeps accruing interest at the higher rate while you are paying down the cheaper debt first. This is the opposite of what you want, and it is why a cash advance balance can linger for months even if you are making regular payments.
To pay off a cash advance faster, you need to make payments above your minimum and specifically request that the extra money go to the cash advance balance. Some issuers allow you to do this online or by phone; others require a written request. Check your card's website or call the customer service number on the back of your card to find out how to direct a payment.
The impact on your credit score
A cash advance counts against your available credit, just like a purchase does. If your credit limit is $5,000 and you take a $500 cash advance, your available credit drops to $4,500. This increases your credit utilization ratio — the percentage of your total credit limit that you are using. Credit scoring models treat high utilization as a sign of financial stress, and even a small increase can lower your score by a few points.
The impact is usually temporary. Once you pay off the cash advance, your utilization drops and your score typically recovers. But if you carry the balance for months, the damage compounds because the high utilization persists and the interest keeps growing.
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 is the fastest option available. If you need cash for an emergency and have no other way to get it — no savings, no access to a personal loan, no one to borrow from — and you can pay it back within a month or two, the total cost might be manageable.
For example, if your car breaks down and you need $800 for a repair, and you can pay back a cash advance in 30 days, the fee ($24 to $40) plus one month of interest ($18 to $22) totals roughly $40 to $60. That is expensive, but it might be cheaper than a payday loan, which can cost $15 to $20 per $100 borrowed over two weeks — roughly $120 to $160 for $800.
But this calculation only works if you actually pay it back quickly. If the balance lingers for six months, the interest alone will exceed $140, making the cash advance far more costly than the payday loan would have been.
Cheaper alternatives to a cash advance
Before you use a cash advance, consider these options:
- A personal loan from a bank or credit union: Interest rates are usually lower than a cash advance rate, and you have a fixed repayment schedule. You know exactly how much you owe and when it will be paid off. Banks and credit unions often process loans within one to three business days.
- A line of credit: Some banks offer personal lines of credit with lower rates than cash advances. You draw what you need and pay interest only on what you use.
- Borrowing from family or friends: If possible, this is usually the cheapest option. Even a small-interest loan from someone you know beats a cash advance.
- A payday loan: These are expensive and come with their own risks, but for a very short-term need (one to two weeks), the total cost might be lower than a cash advance you carry for months.
- Negotiating with the creditor or vendor: If you owe money to a doctor, utility company, or other service provider, ask about a payment plan. Many will work with you to avoid sending the debt to a collection agency.
How to take a cash advance if you decide to
If you have decided a cash advance is your best option, here is how to do it. First, call your card issuer to confirm your cash advance limit. This is often lower than your purchase limit. Ask for your cash advance APR and the fee percentage so you can calculate the total cost before you proceed.
You can withdraw cash at an ATM using your credit card and PIN, at a bank teller by presenting your card and ID, or sometimes at a convenience store or casino. ATMs usually charge an additional fee ($2 to $5) on top of the cash advance fee, so a bank teller is often cheaper. The money is available when ready.
As soon as you have the cash, make a plan to pay it back. Set a target payoff date — ideally within 30 days — and calculate how much you need to pay each week to hit that date. Make those payments on schedule. Do not let the balance sit and accrue interest.
Frequently Asked Questions
Can I take a cash advance on a credit card I just opened?
Most card issuers allow cash advances when ready, but some have a waiting period of 30 to 90 days. Check your card's terms or call customer service. Your cash advance limit may also be lower than your purchase limit, even on a new card.
What happens if I cannot pay back the cash advance?
The balance stays on your credit card and continues to accrue interest at the high cash advance rate. If you miss payments, late fees are added and your credit score drops. The debt can be reported to collection agencies if it goes unpaid for 180 days.
Is a cash advance the same as a balance transfer?
No. A balance transfer moves debt from one card to another, usually at a lower promotional rate. A cash advance is borrowing new money against your credit limit. They have different fees, rates, and repayment rules.
Can I avoid the cash advance fee?
No. The fee is charged by the card issuer and is non-negotiable. You pay it the moment you withdraw the cash. The only way to avoid it is to not take a cash advance.
Does a cash advance hurt my credit when ready?
The withdrawal itself does not hurt your score, but it increases your credit utilization, which can lower your score by a few points within days. The impact is usually small and temporary if you pay it back quickly.