A cash advance is when you borrow money directly from your credit card's cash reserve, not a purchase you make
When you take a cash advance, you are withdrawing actual money — from an ATM, at a bank counter, or through a balance transfer — using your credit card as the source. It is not the same as swiping your card at a store. The card issuer lends you cash up to a limit they set, separate from your regular credit limit. You then owe that money back, plus interest and fees, just like any other debt.
The catch is that cash advances cost significantly more than regular purchases. Your card charges a separate interest rate for cash advances — often 3 to 5 percentage points higher than your purchase rate — and you start paying interest when ready, with no grace period. Most cards also charge an upfront fee of 3 to 5 percent of the amount you withdraw. If you take out $500, you might pay $15 to $25 just to get the cash, before any interest accrues.
Key Takeaways
- Cash advances charge a higher interest rate than purchases, usually 3 to 5 percentage points above your standard APR, and interest starts accruing right away with no grace period.
- You pay an upfront fee of 3 to 5 percent of the amount withdrawn, charged when ready to your account.
- Your cash advance limit is often lower than your total credit limit, and some cards do not offer cash advances at all.
- The total cost of borrowing $500 for one month can easily exceed $30 to $40 when you add the fee and interest together.
How the fees and interest work
The fee hits your account the moment you complete the transaction. If you withdraw $500 and your card charges a 4 percent fee, you owe $520 when ready — the $500 cash plus the $20 fee. That $520 then starts accruing interest at your cash advance rate, which might be 24 percent APR or higher, depending on your card and creditworthiness.
Interest on a cash advance is calculated daily and compounds, so the longer you carry the balance, the faster it grows. Unlike a purchase, there is no 21-day grace period where you can pay it back interest-free. Interest starts the day you withdraw the money. If you carry that $520 for 30 days at 24 percent APR, you will owe roughly $40 in interest alone, on top of the original $20 fee. Your total cost for borrowing $500 for one month is $60 — a 12 percent cost for 30 days of borrowing.
Where you can get a cash advance
You can withdraw a cash advance at any ATM that displays your card's logo — Visa, Mastercard, American Express, or Discover. You can also go to a bank branch, even one that is not your own bank, and ask the teller for a cash advance. Some credit card issuers also allow you to request a check linked to your cash advance account, or to transfer money directly to your bank account, though these methods may carry different fees.
The amount you can withdraw is capped at your cash advance limit, which is set by your card issuer and is often much lower than your total credit limit. You might have a $5,000 credit limit but only a $1,000 cash advance limit. Some cards, particularly store cards and older cards, do not offer cash advances at all. Check your card's terms or call the number on the back to find out your cash advance limit before you try to withdraw.
When a cash advance makes sense (and when it does not)
A cash advance is rarely the cheapest way to borrow money. A personal loan from a bank or credit union, a payday loan from a licensed lender, or even a short-term loan from a friend will almost always cost less. The only scenario where a cash advance might make sense is if you need cash for a true emergency — a car repair, a medical bill, a security deposit — and you have no other option and can pay it back within a few days.
Even then, the math is brutal. If you borrow $300 for three days, you pay a $12 to $15 fee upfront, plus roughly $6 in interest. That is $18 to $21 to borrow $300 for 72 hours. A payday loan or a cash advance from your employer would be cheaper. A cash advance should be your last resort, not your first choice, because the fees and interest rates are designed to make the card issuer money, not to help you.
How a cash advance affects your credit score
Taking a cash advance does not directly hurt your credit score the way a missed payment does. However, it does increase your credit utilization — the amount of available credit you are using — which can lower your score by a few points. If you have a $5,000 credit limit and you take a $1,000 cash advance, your utilization jumps to 20 percent, and your score may dip slightly.
The bigger risk is that a cash advance can become a debt trap. If you cannot pay it back quickly, the high interest rate means your balance grows faster than it would on a regular purchase. Carrying a large cash advance balance for months will drag down your score and make it harder to borrow money elsewhere. The damage is not from the cash advance itself, but from the debt it creates if you do not pay it off fast.
How to pay back a cash advance
Your cash advance balance appears on your credit card statement, and you can pay it back like any other charge. However, most card issuers explore your payment to your lowest-interest debt first — usually purchases — before they explore it to your cash advance. This means if you have both a purchase balance and a cash advance balance, your payment goes toward the purchase first, and the cash advance keeps accruing interest at the higher rate.
To pay off a cash advance faster, you may need to contact your card issuer and ask them to explore your payment directly to the cash advance balance, or you can pay more than the minimum to may support enough money goes toward the higher-interest debt. Some cards let you make payments online and specify which balance to pay. Check your card's website or call the number on the back to find out how to direct your payment.
Alternatives to a cash advance
If you need cash and do not have it on hand, explore these options before you take 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 far cheaper than a cash advance. A payday loan, despite its bad reputation, often costs less for a short-term borrow — though the rates are still high. Asking your employer for an advance on your paycheck, borrowing from family, or selling something you own are all cheaper than a cash advance.
If you are in a bind and need cash for an emergency, contact a local nonprofit credit counselor through the National Foundation for Credit Counseling (NFCC). They can help you understand your options and may know of emergency information programs in your area. A cash advance should be a last resort, not a habit, because the cost compounds quickly and can trap you in a cycle of debt.
Frequently Asked Questions
Can I take a cash advance if I have a 0 percent introductory APR on my card?
No. The 0 percent rate applies only to purchases, not to cash advances. Cash advances have their own interest rate, which is usually much higher, and that rate is active from day one. The introductory offer does not cover cash advances at all.
What happens if I do not pay back a cash advance?
It becomes part of your credit card debt. If you miss a payment, your card issuer reports it to the credit bureaus, your credit score drops, and you may face late fees and a higher interest rate on your entire card balance. If the debt goes unpaid for long enough, the card issuer may close your account and send the debt to a collection agency.
Is there a difference between a cash advance and a balance transfer?
Yes. A cash advance is borrowing cash against your card. A balance transfer is moving debt from one card to another. Balance transfers often have lower introductory rates (sometimes 0 percent for a period), but they also charge an upfront fee of 3 to 5 percent. Cash advances have higher ongoing interest rates but the same upfront fee structure.
Can I use a cash advance to pay another bill?
Technically yes, but it is a bad idea. You are borrowing at a high interest rate with an upfront fee just to move money around. If you need to pay a bill and do not have the cash, a personal loan or asking the biller for a payment plan will cost you less.