What is a Cash Advance Fee on a Credit Card?

Credit card companies charge a cash advance fee when you use your card's line of credit to get access to cash. Because card issuers add fees and high interest rates to these transactions, cash advances are an expensive way to get extra money when you're in a pinch.

What is a cash advance?

You can use your credit card not just for purchases, but also to tap into your card's line of credit for cash when needed. This is called a cash advance. You might get a cash advance through:

• A bank or credit union in person

• An ATM

• Over the phone

• By cashing convenience checks from your card issuer

Your cash advance limit is typically lower than your total credit limit. For example, with a $5,000 credit line, you might only be allowed cash advances up to $1,000.

When you take an advance, the amount you borrow plus fees gets added to your credit card balance. You'll need to repay it with interest just like any other credit card charge.

Why am I being charged a cash advance fee?

You'll pay a fee for requesting a cash advance, but that's not the only time these fees appear. Many transactions get classified as cash advances even if you don't receive cash directly. Your card may charge cash advance fees when you:

• Transfer money through apps

• Make a loan payment

• Complete a wire transfer

• Purchase traveler's checks

• Buy money orders

• Pay for lottery tickets or gambling

• Exchange foreign currency

Cash advance terms and fees

Cash advances come with several costs you should understand:

• Cash advance annual percentage rate (APR): Interest rates on cash advances are typically higher than rates for regular purchases

• Cash advance fee: Card companies charge 3% to 5% of the advance amount (or $10, whichever is higher)

• Bank fee: Getting a cash advance in person might trigger additional bank charges

• ATM fee: Using an out-of-network ATM for a cash advance can result in extra fees

Unlike regular purchases, cash advances usually don't have grace periods. This means interest starts building up immediately, not after your billing cycle ends.

How much is a cash advance fee?

Most credit card companies charge between 3% and 5% of the cash advance amount or $10 (whichever is higher). But fees vary by issuer.

To understand the real cost, let's look at an example. Say your card charges:

• 5% cash advance fee (minimum $10)

• 29.99% cash advance APR

• You take $1,000 and pay it off over six months

Your costs would be:

• $50 initial fee (5% of $1,000)

• About $90 in interest over six months

• Total cost: Around $140 to borrow $1,000

When you pay more than the minimum due each month, card issuers typically apply the extra payment to your highest-interest balance first (likely your cash advance). There's an exception for deferred interest offers, you can request that extra payments go toward those balances first.

Should you get a cash advance?

A cash advance might make sense if you:

• Need a small amount

• Can repay it quickly (including fees)

• Have no better options available

However, it's probably not your best choice if you need a larger sum or longer repayment timeline.

How to avoid cash advance fees

Consider these alternatives instead of taking a cash advance:

• Use savings: If you have an emergency fund, this is what it's for. Just remember to rebuild it later.

• Try a paycheck advance app: These offer short-term, interest-free loans without credit checks, though you might pay a small fee for immediate access.

• Consider buy now, pay later (BNPL) apps: These let you split payments into instalments, usually without interest or credit checks.

• Ask friends or family: A personal loan from someone you trust might come with no or low interest. Just make it official with a written agreement.

• Apply for a personal loan: With decent credit, you might qualify for a personal loan with lower rates than a cash advance, sometimes with same-day funding.

Making smart money decisions in a pinch

While cash advances seem convenient when you need money fast, the combination of fees and high immediate interest makes them one of the most expensive borrowing options. Before heading to the ATM with your credit card, take a moment to consider alternatives that could save you significant money in the long run.

If you find yourself frequently needing cash advances, it might be time to review your overall financial situation. Building an emergency fund, even starting with small amounts, can help you avoid costly credit card advances in the future. Remember that the best financial solution is usually the one that solves your immediate problem without creating a bigger one down the road.