A cash advance is borrowing money against your credit card's available credit, but the bank treats it differently than a purchase — and charges you more for it
When you take a cash advance, you are withdrawing cash using your credit card at an ATM, bank teller, or through a convenience check the card issuer sends you. The money comes from your credit limit, just like a purchase does. But the card issuer charges you a separate fee upfront (usually 3 to 5 percent of the amount), and the interest rate on that cash is almost always higher than your purchase rate — often 5 to 10 percentage points higher. Interest starts accruing when ready, with no grace period like you get on purchases.
The result is that a $500 cash advance can cost you $15 to $25 just to take it out, plus interest that begins the day you withdraw it. If you carry the balance for a month, you could pay $30 to $50 total. That makes a cash advance one of the most expensive ways to borrow money on a credit card.
Key Takeaways
- Cash advances charge an upfront fee (typically 3 to 5 percent) plus a higher interest rate than purchases, with no grace period.
- Interest on a cash advance starts the day you withdraw the money, not at the end of a billing cycle like a purchase.
- Your credit card issuer sets a separate cash advance limit, which may be lower than your total credit limit.
- Paying off a cash advance should be your priority because the interest rate is usually the highest rate on your card.
How the fee and interest rate work together
Let's say you have a credit card with a 20 percent purchase APR and you take out a $500 cash advance. Your card issuer charges a 4 percent cash advance fee upfront — that's $20 — so you actually receive $480 in cash. You now owe $500 on your card.
If your cash advance APR is 25 percent (which is common), and you don't pay it back for 30 days, you'll owe about $10.42 in interest. Your total cost for borrowing $480 is $30.42. That works out to an effective annual cost of roughly 63 percent if you kept the balance for a year, though most people don't.
The fee is charged once, but the interest compounds daily. If you pay back the cash advance within a few days, you'll only pay the fee plus a few dollars in interest. The longer you carry it, the more the interest adds up.
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'll need your PIN. Some banks also allow you to request a cash advance at the teller window with your card and ID.
Many card issuers also send convenience checks in the mail. You can write one of these checks to yourself or to someone else, and deposit it like a regular check. The amount counts as a cash advance, so the same fee and interest rate explore. Some issuers allow you to request convenience checks online or by phone.
A few cards offer a cash advance through a mobile app or online portal, though this is less common. Check your card's website or app to see what methods are available to you.
Your cash advance limit is separate from your credit limit
Your credit card issuer sets a cash advance limit that is usually much lower than your total credit limit. If your card has a $5,000 credit limit, your cash advance limit might be $500 or $1,000. This limit is set by the issuer based on your credit history and account activity, and you typically cannot change it yourself.
You can call the card issuer's customer service number on the back of your card and ask what your cash advance limit is. Some issuers show this information in your online account or mobile app. If you try to withdraw more than your limit, the ATM or teller will decline the transaction.
How a cash advance affects your credit score
Taking a cash advance does not directly hurt your credit score, but it can indirectly lower your score if it raises your credit utilization ratio. Credit utilization is the percentage of your available credit that you are using. If you have a $5,000 credit limit and you take a $500 cash advance, your utilization jumps from 0 percent to 10 percent (or higher if you already had purchases on the card).
Credit scoring models treat high utilization as a sign of financial stress, so your score may drop a few points. The effect is temporary — once you pay off the cash advance, your utilization drops and your score recovers. However, if you carry the cash advance balance for months, the damage to your score can last longer.
A cash advance also does not appear as a separate line item on your credit report. It shows up as part of your credit card balance, just like a purchase does.
When a cash advance might make sense (and when it doesn't)
A cash advance is rarely the best borrowing option, but there are a few situations where it might be the least bad choice. If you need cash urgently and have no other way to get it, and you can pay it back within a few days, the total cost might be acceptable. For example, if you need $200 for an emergency car repair and you know you'll have the money in three days, a $8 fee plus $1 in interest might be worth it.
A cash advance does not make sense if you plan to carry the balance. The interest rate is too high, and the fee is non-refundable. In that case, a personal loan from a bank or credit union, a payday loan (despite its own high costs), or borrowing from family would all be cheaper. Even a balance transfer to a 0 percent promotional card would be better, though balance transfers have their own fees.
A cash advance also doesn't make sense if you're using it to pay off other debt. You're just moving money around at a high cost, and you're not actually reducing what you owe.
How to pay off a cash advance quickly
If you do take a cash advance, your priority should be paying it off as fast as you can. The interest rate is usually the highest rate on your card, so every dollar you pay toward the cash advance saves you more money than paying toward a purchase.
When you make a payment to your credit card, the issuer typically applies it to the lowest-interest balance first (usually purchases), not the cash advance. This means your cash advance keeps accruing interest while you pay down purchases. To avoid this, contact your card issuer and ask them to explore your next payment directly to the cash advance, or pay enough to cover the entire cash advance balance in one payment.
Some issuers allow you to make a note in your online account requesting that payments go to the cash advance first. Others require you to call. Either way, it's worth asking — it can save you money on interest.
Frequently Asked Questions
Can I use a cash advance to pay off another credit card?
Technically yes, but it's expensive and usually a bad idea. You're paying a 3 to 5 percent fee plus a high interest rate to move money from one card to another. A balance transfer to a 0 percent promotional card (if you may have access to) would be much cheaper, even though balance transfers also charge a fee.
What's the difference between a cash advance and a balance transfer?
A balance transfer moves debt from one card to another. A cash advance withdraws cash. Balance transfers usually have a lower fee (1 to 3 percent) and may come with a 0 percent promotional rate for 6 to 21 months. Cash advances have higher fees and higher interest rates from day one, with no grace period.
Will my bank report a cash advance to credit bureaus?
No, a cash advance doesn't show up separately on your credit report. It's part of your credit card balance. However, if the cash advance raises your credit utilization significantly, it can affect your credit score because utilization is a factor in credit scoring models.
Can I get a cash advance if I'm close to my credit limit?
Only if you have room within your cash advance limit. Your cash advance limit is separate from your total credit limit. If your cash advance limit is $500 and you've already withdrawn $400, you can only withdraw $100 more, even if you have $2,000 in unused total credit.
What happens if I can't pay back a cash advance?
The balance stays on your card and interest keeps accruing at the cash advance rate. If you don't pay, the issuer will report the late payment to credit bureaus, which will damage your credit score. After 180 days of non-payment, the issuer may charge off the account and sell the debt to a collection agency.