What is a cash advance?

Getting a cash advance on your credit card is a quick and easy way to solve short-term financial problems. However, cash advances are not always the best option.

A cash advance is a short-term loan taken against your card’s credit line. While it may look like an obvious choice when you need money quickly and have no other funds, it’s also an expensive kind of debt that should be avoided whenever possible.

Here’s how cash advances work and what other options you can use to get funds quickly.

How to get a cash advance from your credit card

A cash advance allows you to get cash from your credit card like you would from your debit card account.

If you have a credit card with a PIN, you can use an ATM to get a cash advance like you would with a debit card. Most likely, you’ll need to go to your bank or credit union and ask for a cash advance on your credit card. The representative will run your card – and both the bank or credit union and the credit card issuer may apply fees – and then hand you the cash amount requested.

Cash advance terms and fees

When you take out a cash advance, you’re using the available balance on your credit card to take out a cash loan. This kind of transaction is treated differently from your regular purchases, and your credit card issuer will charge you a different interest rate.

Here are the typical terms and fees for a credit card cash advance:

• Cash advance APRs are usually higher than the card’s regular APR.
• There’s no grace period – the interest on a cash advance accumulates immediately.
• Cash advance fees, either a percentage of the advance or a flat dollar amount, are typically tacked on and charged to your credit card account.
• Your bank or credit union may apply fees and charges to the credit card cash advance as well.

Credit card cash advance terms and fees also vary by credit card issuer. Here are the terms and fees for some top issuers’ popular cards:

*Whichever is greater

How much will a cash advance cost?

The main appeal of cash advances is convenience, but cash advances are costly.

Let’s say you have a credit limit of $2,500, with $1,000 already charged to it and you take out a cash advance for $700. If you’re using the Capital One Quicksilver Rewards card, you’ll pay an additional $21 and 29.24% variable APR on that $721 immediately. With the Citi Custom Cash Card, you’ll pay 29.49% variable APR on $735 immediately.

How a cash advance can affect your credit score

When it comes to credit reporting, a cash advance is treated the same as the rest of your credit card debt. This means that it won’t show up on your credit file as a separate item. However, it can still impact your credit.

“A cash advance can impact your score if you take out too much money,” says Howard Dvorkin, CPA and chairman of Debt.com. “The more cash you withdraw, the closer you will get to reaching your credit limit. Maxing out your line of credit or using over 30 percent of your credit limit can hurt your credit score.”

Since interest and fees on cash advances add up quickly, they can easily boost your credit utilization ratio, especially if the credit limit on your card is low.

“To help protect your score … see if your credit card company will increase your credit limit if you absolutely have to make a cash advance transaction,” Dvorkin suggests.

Pros and cons of a cash advance

Pros e

• No credit check. Since you already have access to the credit line, a credit check isn’t required for you to take out a cash advance.
• Lower APRs than payday loans. If you’re in a pressing financial situation and don’t have the credit to get a personal loan, a cash advance’s APR will likely be lower than a payday loan.
• Immediate funds. Credit card cash advances let you have the money you need in just one quick trip to a bank or ATM.

Cons

• Immediate interest charges. While regular purchase APRs accrue at the end of each billing cycle, credit card cash advances accrue interest immediately.
• Increases credit utilization ratio. When you borrow cash against your credit limit, your credit utilization ratio increases, which can negatively impact your credit score.
• Higher APR than personal loans. Credit card cash advances have higher interest rates than a personal loan and accrue interest immediately, so you’ll likely pay more with a cash advance than you would with a personal loan in the long run.

It’s understandable that needing cash while having none available can be a terrible feeling and put you under a lot of stress. In emergency situations, it might seem crucial to get funds immediately, regardless of financial and credit consequences.

Another option to consider is a personal loan. The average 24-month personal loan rate is about 8.73 percent, which is much lower than the APR on a credit card cash advance. Even if your credit score isn’t in the best shape, it’s likely you’ll find a personal loan with a lower interest rate than that of a cash advance.

It’s also convenient that you’ll be able to pay out the loan over time in fixed payments instead of worrying about accruing interest charges and harming your credit utilization ratio. Plus, you might be able to get a larger sum, since cash advances are often capped at a few hundred dollars.

Bottom line

It can be stressful to need cash urgently. Without an emergency fund or any savings, you may feel like you barely have any options. Still, a cash advance should only be viewed as a last resort.

If you’ve considered the alternatives and concluded that you don’t have any cost-effective options, be sure to calculate exactly how much a cash advance will cost you and create a plan to pay it off as fast as you can.