A credit card cash advance works like a short-term loan drawn against your credit line, and it usually costs more than a regular purchase. Here is how the fees, interest and payment rules typically fit together.
When you use your credit card to pull cash at an ATM, you are not simply withdrawing money you already have, the way a debit card works. Instead, you are borrowing against your credit line. The Consumer Financial Protection Bureau describes cash advances as one of the more expensive ways to get emergency cash, and the reasons why become clear once you look at the fee structure and the interest charges that apply from day one.
What a cash advance is
A cash advance lets you take cash against your credit card line, whether at an ATM, at a bank counter, or through a check or transfer the issuer provides. Unlike a debit card withdrawal, which comes from money you already have in your account, a credit card cash withdrawal is treated as a loan that you must repay with fees and interest.
Many cards have two limits. The first is the overall credit limit that governs your total balance. The second is a separate, usually lower, limit for cash advances. You might have plenty of room to buy goods but still be refused at an ATM because the cash advance limit has been reached. Checking this limit before you need the cash avoids an unpleasant surprise at the machine. Your issuer can tell you what your cash advance limit is and how much of it remains available.
How fees and interest are charged
Cash advance fees are commonly either a flat amount or a percentage of the amount withdrawn, and some agreements set a minimum fee. The CFPB has noted that a minimum fee of about ten dollars can mean a small withdrawal carries the same fee as a much larger one. For example, a twenty-dollar transaction and a two-hundred-dollar ATM withdrawal might both trigger the same ten-dollar minimum, which makes the cost high relative to the amount borrowed. ATM operators may also charge their own fees on top of the issuer's charges, so the total cost can add up quickly.
Interest on cash advances often starts accruing on the day of the transaction, with no interest-free grace period. The APR is commonly higher than the rate on regular purchases, and in agreements the CFPB reviewed, the most common cash advance APR was 30 percent. Because this rate can apply even when you normally pay your purchase balance in full, the total cost of a cash advance can be meaningfully higher than the cash you received.
How your payments are applied
When you pay more than the minimum, federal rules require the issuer to apply the excess to the balance with the highest interest rate first. Because cash advance APRs are often higher than purchase APRs, the excess may go to the cash advance balance before the purchase balance. Knowing this helps you understand why a balance can seem to shrink more slowly than expected.
Deferred interest plans follow different rules. You may ask to direct extra payments to the deferred balance first, and in the two billing cycles before a deferred period ends, the issuer must apply the entire payment above the minimum to that balance. Reading your statement and account terms will show which rules apply to your card.
Reading the terms before you use the card
Your cash advance terms are set out in your card agreement, which is a contract between you and your issuer. The agreement is where you will find the cash advance limit, the fee structure, the APR and any minimum charge. If a fee is disclosed in the agreement, the issuer may charge it, so reading those terms before you withdraw cash is the most practical step you can take.
Some transactions can be treated as cash advances even when they do not look like ATM withdrawals. The CFPB has reported that many issuers treat credit card payments for sports gambling as cash advances, which can bring cash advance fees and interest. Asking your issuer how gambling or similar transactions are coded is a reasonable question to ask before making such a payment.
Before using the card for cash, consider whether you need a cash advance at all. Compare the cost of the fee and interest against other options you might have, and bear in mind that the amount you repay will be larger than the amount you took out. This article is general education, not personal financial advice, so for guidance about your own situation a licensed professional is the right resource.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
