Financial experts generally frown upon taking a credit card cash advance, and it's easy to see why. Most credit cards not only charge higher interest rates on cash advances but also charge fees on top of it. However, there are some decent reasons for taking a credit card cash advance and a few credit cards that actually offer reasonable cash advance terms.
Know what you're getting into first
A cash advance refers to taking a short-term cash loan against your credit card. Typically, credit card users who want to take a cash advance do so at an ATM using a PIN, just like when using a debit card. Many credit cards also allow for check cash advances, where you have the ability to write a check and have the charge added to your credit card's balance.
There are definitely some upsides to cash advances. For starters, they give you quick and easy access to cash in an emergency, or if you find yourself in a situation where credit cards aren't accepted. And the cost of a cash advance is cheaper than some other types of borrowing, such as payday loans.
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However, there are several things you need to know before taking out a cash advance that could make you think twice.
- Unlike with credit card purchases, cash advances don't have a grace period. Interest starts accumulating immediately after you get the cash.
- Most credit cards charge cash advance fees (2% to 5% of the transaction is typical).
- You usually have a lower limit for cash advances than purchases.
- The interest rate for cash advances is normally higher than the purchase APR. A recent survey found that the average cash advance APR is 23.53%, far higher than the average purchase APR of 14.99%.
- Cash advances aren't eligible for credit card rewards -- you aren't going to get frequent flyer miles for simply withdrawing cash at an ATM.
How to get the best credit card cash advance deals
Having said all of that, there are certainly some valid reasons for taking a cash advance. And if you're going to do it, you may as well get the best possible deal.
One card that is particularly cash advance-friendly is the Barclaycard Ring from Barclays, which charges the same APR for both purchases and cash advances and has a low cash advance fee of just $3. Since the card has one of the lowest APRs in the business -- as low as just 8% -- a cash advance on the card could be cheaper than, say, a personal loan from a bank.
Many credit unions also offer credit cards with decent cash advance terms, such as this one from Fort Knox Federal Credit Union, which has no cash advance fee whatsoever, and the same APR on both purchases and cash advances. The current APR range is 9.25% to 14.25%, so this is much better than typical cards. And, unlike the Barclaycard, the Fort Knox card lets you earn rewards as well.
Finally, it's worth mentioning that certain card issuers offer promotional cash advance deals fairly often. For example, I have a credit card with Bank of America, where I also maintain my checking account. Every so often, they send me checks I can use for cash advances (or anything else for that matter) that have promotional rates. And I'd be willing to bet that other big banks have similar offers from time to time.
The latest promotional mailer I received offers a 0% APR for cash advances until April 2017 -- more than 18 months from now. Even though a 3% cash advance fee still applies, this is about the cheapest way to borrow money for a year and a half that I know of. You'll need good (but not necessarily great) credit to get offers like these, but if you have the ability to take a cash advance on a credit card in the first place, I'm assuming you have at least decent credit.
The takeaway
Cash advances are convenient, but don't just start using your cash advance privileges without fully understanding what you're getting into. If you do decide that a cash advance is the best option for you -- or you simply want the option of taking cash advances in the future, make sure to get a credit card that offers favorable terms.
