You might not know it at first, but you can use your credit card to withdraw cash. This process is known as a “cash advance” and has its own set of rules for withdrawal and repayment separate from how you would typically pay back other charges to your credit card balance.
Let’s learn a bit more about cash advances so you can decide whether you need one, as well as how to obtain one if you do.
What is a cash advance on a credit card?
A cash advance happens whenever you use your credit card to get cash from an ATM or bank.
Cash advances typically have a different credit limit that is based on your regular credit limit. This cash advance limit is usually 20-30% of your regular credit limit. It’s also important to note that credit card companies charge interest on your cash advance as soon as you make the withdrawal. The rate of this interest is typically a separate cash advance APR, higher than your purchase APR.
Rates and fees associated with credit card cash advances
There are generally three types of fees associated with credit card cash advances:
- Transaction fee: A transaction fee is typically around 5% of the cash advance amount, with a minimum fee of $10.
- ATM fees: If you use an ATM to get your credit card cash advance, your bank or the ATM operator may also charge a separate fee.
- Interest rates: One of the biggest drawbacks to credit card cash advances is that they often come with high interest.
Steps to get cash from a credit card
To get cash from a credit card, you’ll start with these steps:
1. Check your latest statement
Check your latest statement to figure out your card’s cash advance limit.
2. Read the terms of your agreement
Look at your credit card’s terms of agreement and see whether they have any stipulations regarding cash advances.
3. Find an ATM or bank
Most ATMs will allow you to take out a cash advance. If you choose a bank, you should make sure that it accepts your credit card. You may be able to find bank branches and ATM locations on your credit card’s website.
4. Withdraw money from an ATM
Withdrawing a cash advance from a credit card at an ATM will require you to know the card’s corresponding PIN.
5. Go to a bank to withdraw money
You can also use your credit card at your bank to withdraw cash. This will require you to show identification.
Once you go through all these steps, you’ll need to repay your cash advance with any additional fees and interest you may have accrued.
Things to consider before taking a cash advance
Think of a cash advance as similar to a cash loan. Just like with cash loans, there’ll be terms and conditions you’ll want to understand ahead of time. You’ll need to look at the associated fees, interest rates, and other conditions that may affect your credit card usage.
Higher interest rates
The APR for credit card cash advances is usually higher than your credit card’s purchase APR. This can cause you to rack up debt quickly if you’re not careful.
No Grace Period
Cash advances typically don’t have a grace period for interest charges. This means that you’ll start being charged interest on your cash advance as soon as the transaction is made.
You typically don’t earn rewards on cash advances as they are not considered purchases. This means you will not earn any points, miles, or cash back for cash advances.
Alternatives to taking a cash advance
Keep in mind, as well, that cash advances generally should only be considered when you need access to cash quickly and have no other options. They should not be used as a long-term solution to financial difficulties.
Before you take a cash advance, you should consider these alternatives:
- Make purchases with your credit card or debit card: If you do not need cash to make a purchase, you could just use your credit card or debit card to make the purchase instead.
- Build an emergency fund: Save for emergencies so that you don’t have to rely on cash advances in a pinch.
- Apply for a personal loan: A personal loan may provide you with the cash you need and cost you less in fees and interest than a cash advance.
If you find yourself in a situation where you need cash but don’t have immediate access to it, a credit card cash advance can be a helpful solution, but you should try to pay it off as quickly as possible to keep interest charges to a minimum.
Frequently asked questions:
1. Do cash advances on credit cards hurt your credit score?
Cash advances don’t directly hurt your credit score, but they can affect your credit utilization ratio by lowering your amount of available credit, which can in turn lower your credit score.
2. Why are cash advances so expensive?
Credit card companies will charge a cash advance fee and an interest rate for cash advances, which will make them a more expensive option than simply withdrawing cash from a debit card.
3. How can you avoid cash advance fees?
Since a cash advance fee is charged immediately when you take the advance, there is no way to avoid a cash advance fee.
If you want to keep interest charges on a cash advance down, try to pay off the borrowed amount and any accrued interest as soon as possible. That way, you can keep the interest charges to a minimum.
4. Is cash back the same as a cash advance?
No. Some credit cards offer cash back, which are rewards that come from making purchases with the cards and can typically be redeemed as a statement credit, direct deposit or check. Cash advances involve money taken directly from the line of credit associated with your credit card.
5. What credit score is needed for a cash advance?
There’s no set credit score required for a cash advance. If you’ve been approved for a credit card that allows cash advances, you typically can take out a cash advance at your convenience. No further credit score checks are needed.
6. Can I get a cash advance on a credit card with poor credit?
No matter your credit, if you’ve been approved for a card that allows cash advances, you typically can take out a cash advance. However, poor credit may affect your credit limit or your cash advance limit.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.