Credit cards are accepted more places than ever before, but there are still a few places where you may need cash. If you're in a bind, a credit card cash advance can seem like a good way to get quick cash. But should you do it?
The reality is that credit card cash advances can be very expensive -- and they often cost a lot more than you initially realize. Although they can occasionally be better than the alternative, you should consider a credit card cash advance only as a last resort. Here's what you need to know before you use a credit card cash advance.
At its most basic, a credit card cash advance is like taking out a small loan from your credit card issuer -- a small, but very expensive loan (more on that below). You only withdraw cash up to your card's cash advance limit, which you can find on your credit card account page (or app) or in your cardholder agreement.
Your credit card cash advance limit will typically be lower than your credit limit, with a typical limit falling between 20% to 50% of your total spending limit. For example, if you have a $5,000 credit limit on your card, your cash advance limit will likely be less than $2,500. Cardholders with higher credit scores tend to have higher spending and cash advance limits.
You can get a credit card cash advance at a regular ATM, provided you have your cash advance PIN. In most cases, you'll need to proactively request your cash advance PIN from your issuer. Some issuers may provide your cash advance PIN through your online account, but you may need to call. The card issuer will likely send your cash advance PIN by mail if you make the request by mail or phone.
Before you even consider a credit card cash advance, make sure your credit card issuer actually allows them. You can see if your card can be used for a cash advance by checking your cardholder agreement.
In addition to getting a credit card cash advance through an ATM, you can also use what's known as a convenience check. Often sent in the envelope with your card, convenience checks can be used just as you would a personal check (we offer a quick guide to writing a check if you're from the cards-only era).
The allure of credit card cash advances is no mystery; when you need quick cash, the convenience of hitting an ATM with your credit card is no small thing. But you should be aware of all of the costs before you start punching in PINs.
As soon as you get a cash advance with your credit card, you start getting charged -- and from two directions. First, the transaction itself will come with a cash advance fee. This fee will generally be a percentage of the cash advance amount, with 3% to 5% fees being typical.
In addition to the transaction fee, cash advances will accrue interest fees, just as regular purchases do. Unlike when you make regular purchases, however, cash advances have no grace period.
No grace period means the cash advance will start collecting interest as soon as you complete the transaction. Unfortunately, this means you'll have to pay interest on the cash advance even if you pay off all the cash you withdrew when your statement comes.
Not only does interest start accruing immediately, but many credit cards also charge a higher APR on cash advances than they do on purchases and balance transfers. In fact, the APR for a credit card cash advance can easily be 5% to 10% higher than the normal purchase rate.
We've focused mostly on credit card cash advances that involve actively choosing to withdraw cash as a loan from your credit card account. But that's not the only type of transaction that your credit card may qualify as a cash advance.
Many credit card companies will code certain purchases as a cash advance if they consider the purchase to be a cash-equivalent transaction. This means that you're purchasing something that acts like cash.
For example, if you use your credit card to make a bet at a casino or race track, your issuer will likely consider that purchase to be a cash advance. Other types of purchases that may be termed as cash-equivalents can include money orders, lottery tickets, traveler's cheques, cryptocurrency, and certain gift cards.
As we discussed above, a credit card cash advance starts accruing interest -- at a high rate -- as soon as the transaction hits your account. This means you should repay the cash advance as soon as you possibly can, as in "don't even wait until your credit card bill comes" soon.
If nothing else, endeavor to make more than your minimum required payment each month as you work to repay your cash advance. Otherwise, you may be collecting interest on that advance for a long time.
You see, your cash advance balance is separate from other balances you carry on your credit card, including your purchase balance and the amount you owe on any balance transfers. The card issuer can apply the minimum payment amount to any of your balances, and it typically chooses the one with the lowest interest rate.
So, making only the minimum payment means the whole of your payment can be applied to reduce your purchase balance -- while your more expensive cash advance balance doesn't decline at all.
If you pay more than the minimum payment, though, the CARD Act -- a consumer protection law passed in 2009 -- the game changes. Creditors are required to apply any amount in excess of your minimum payment to the balance with the highest interest rate, which is likely to be your cash advance.
Generally speaking, the transaction fee, immediate interest, and high APRs associated with a credit card cash advance mean you should avoid them if at all possible. However, in some cases, it may actually be the best option.
For example, if you need a small amount of quick cash and are considering a payday loan, a credit card cash advance may be the better choice. Predatory short-term loans will almost always be more expensive than a credit card cash advance.
And a credit card cash advance is certainly a better choice than being evicted for not paying your rent, or defaulting on another credit account. Additionally, if you're abroad and you need fast access to cash, taking a credit card cash advance can be a lifesaver.
While some situations may call for a credit card cash advance, it should never be your first option. Depending on your needs, you may have other choices that make more sense.
For one thing, you should explore whether you can use your credit cards to make a purchase, rather than a cash advance. Most businesses accept credit cards these days, including many utility and rental companies. While they may charge a processing or convenience fee, it should still be cheaper than a credit card cash advance.
Alternatively, low-interest personal loans can be a good way to get the cash you need. They can be especially useful for any large purchases you may need to pay off over a year or more.
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