A credit card can be a source of cash in a pinch. If you’re unable to cover an unexpected expense, a cash advance from your credit card could help. But it probably won’t be cheap.
Many credit cards allow users to take a cash advance against their credit limit. An advance can be taken at an ATM, through a bank withdrawal or using cash advance convenience checks. There are different reasons to tap a credit card for cash, and, of course, there are pros and cons to consider.
What Is a Credit Card Cash Advance?
First, it’s helpful to break down what constitutes a cash advance.
“A credit card cash advance is a debit against your credit card, which is a revolving, open-ended credit line,” says Todd Christensen, education manager for nonprofit debt relief company Money Fit.
A cash advance can yield a lump sum of cash that you can spend as you see fit. In that respect, it’s similar to a personal loan. But in terms of how much you can borrow, how the advance is repaid and the costs of borrowing, there are some differences.
“Loans, as most people understand them, are closed-ended debts with a set monthly payment, a set payoff date and a set interest rate,” Christensen says.
In contrast, a cash advance can be repaid at the borrower’s discretion. For example, you could repay the advance in full on your next month’s statement, just make the minimum payment due or pay something in between. That makes a cash advance more flexible than a loan, at least for repayment, but each of those options carries a different cost.
It’s not an unlimited source of cash, however. Credit card companies may cap an individual cardholder’s cash advance limit. For example, if the card purchase limit is $5,000, the cash advance limit may be $1,500 or $2,000 instead.
[Read: Best Rewards Credit Cards.]
How to Take a Credit Card Cash Advance
Every credit card company has its own rules for taking a cash advance. The first step in taking an advance is to read the fine print on your credit card agreement.
Your card agreement should spell out:
— Whether cash advances are allowed for the card.
— Which methods are available for taking a cash advance.
— What fees, if any, apply to cash advances.
— The annual percentage rate you’ll pay for a cash advance.
— How interest accrues on cash advance balances.
Chase, for instance, lists the cash advance APR and fees on the first page of its card-member agreement, with guidelines for how card members can take an advance and how interest accrues on subsequent pages.
The next step is determining how much cash you can withdraw. You can usually find that by checking your most recent statement or by logging into your online account. From there, you can decide how you want to receive a cash advance.
Most card issuers that allow you to take an advance give you three ways to do so: by withdrawing cash at an ATM, withdrawing cash from your card in person at a bank branch or using cash advance convenience checks.
If you’re getting cash at an ATM, you’ll need to have a PIN set up for your credit card. You can establish one by calling your card’s customer service line. Once you have a PIN, you can visit an ATM, insert your card the same way you would a debit card, then look for the cash advance option on your account menu. You then select the amount of cash you want to withdraw, up to your card’s cash advance limit. Keep in mind that the ATM might impose a daily limit on the amount you can withdraw.
If you’re taking an advance against your credit card at a bank branch, you’ll need a photo ID as proof of identity. You’ll also need to have the card in hand. A teller can help you with completing the advance and filling out any paperwork that’s required.
Some credit card companies routinely mail out convenience checks for cash advances. You write out the check based on how you want to use it. If you need to pay an unexpected medical bill, for example, you could make the check out to the doctor’s office. Or you could write it out to cash, then cash it at your bank. It’s not that different from writing any other kind of check, except that instead of withdrawing money from a checking account, you’re withdrawing it from your credit card account.
If you don’t have any convenience checks on hand, you could request them from your credit card company. Depending on the card, you may be able to make your request for convenience checks online or over the phone. For example, this is a service Discover offers to its card members.
What Does a Credit Card Cash Advance Cost?
There are two costs to consider with a credit card cash advance: the cash advance fee and the APR.
“There are different terms, depending on the card you’re using,” says Jun Lee, customer retention manager at credit repair site ScoreShuttle. “Some come with high cash advance fees, which end up costing you more than a purchase or withdrawal would have with your debit card.”
A cash advance fee is typically 2% to 8% and may have a minimum fee of $5 to $10. If your cash advance fee is 4%, you’d pay $40 for a $1,000 advance.
To add to the cost, the ATM can also charge you a transaction fee for an advance.
Even more important than the fee is the interest you could pay for a cash advance. Not only is the APR for a cash advance typically much higher compared with the regular purchase APR, but the interest charges may kick in immediately.
“Most cash advances have no grace period, meaning your card company begins charging you interest the same day as the cash advance,” Christensen says.
The good news is your cash advance balance is usually considered to be separate from your purchase balance. That means the higher cash advance APR and the instant accrual of interest only apply to the cash advance.
Something else to keep in mind is how your payments are applied when you have a cash advance balance and a purchase balance. When you make the minimum payment, that amount may go toward your purchase balance first. Anything you pay over the minimum is applied to the balance with the highest APR.
Paying off the cash advance in full as soon as possible is the best way to minimize interest charges. But if that’s not doable, cash advances can be a pricey way to cover expenses.
[Read: Best Secured Credit Cards.]
Credit Card Cash Advance Alternatives
A cash advance from a credit card may be something to keep in mind as a last resort when you need extra money. Some alternative possibilities you might consider include:
— Personal loans from a bank or online lender.
— Peer-to-peer loans.
— 401(k) loans or an early withdrawal from an individual retirement account.
— Home equity loans or lines of credit.
— Personal lines of credit.
— Borrowing from friends and family.
Just like credit card cash advances, these all have their advantages and disadvantages. With a 401(k) loan, for example, the money you withdraw doesn’t have a chance to grow for your retirement. And taking money out of an IRA could trigger an early withdrawal penalty, plus regular income tax.
If you’re not able to pursue any of these cash advance alternatives, there are other options. For example, you could borrow from a cash advance, payday or car title lender. But these can be highly expensive, as Christensen points out. These types of loans “can carry annualized interest rates equivalent to 50% to 400%,” he says. A cash advance might be a better choice in that situation.
Exploring every borrowing possibility can help you decide whether a cash advance makes the most sense. And if you decide to take an advance, review your budget and come up with a plan for paying it off as quickly as you can to reduce the total interest paid.
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