What Is a Cash Advance on a Credit Card?

Sometimes life throws a financial curveball—a surprise medical bill, a car repair you never saw coming, or an urgent need for quick cash. In those moments, a credit card cash advance can seem like a lifesaver. Essentially, it’s a feature that lets you use your credit card to withdraw funds from an ATM or bank, just like you would with a debit card. The big difference? The money you withdraw is actually being borrowed against your credit limit, meaning you’ll repay it later—often at a higher interest rate.

How does a cash advance on a credit card work?

A cash advance bypasses the usual grace period you enjoy on regular credit card purchases. Interest starts racking up the moment you withdraw the money. In addition, most credit card companies charge a separate fee—either a flat amount or a percentage of what you withdraw—making this option pricier than many other forms of borrowing.

• Immediate Access: You can grab funds almost instantly, which is convenient if you’re stuck in an emergency situation.

• No Extra Paperwork: Since you’re already approved for the credit limit on your card, you don’t have to fill out any new applications.

Why do people use cash advances on their credit cards?

The primary draw is convenience. Need money now, and don’t have time or the credit score to jump through hoops for a personal loan? A cash advance is right there, on standby. However, it’s important to recognize the trade-offs. You’ll typically face higher interest rates and fees, which can add up fast if you’re not able to pay the balance off quickly.

When should you consider taking out a cash advance?

Cash advances are often seen as last-resort solutions due to their steep costs, but may be necessary in situations like:

• Covering urgent medical bills when no other options exist.

• Paying rent during unexpected financial gaps.

• Managing emergency travel-related expenses without immediate alternatives.

Although they bridge temporary gaps effectively, understanding repayment obligations and potential cost implications helps avoid long-term financial strain.

Risks of using a cash advance on a credit card

1. High Interest Rates from Day One

Most credit cards charge higher interest rates on cash advances than on regular purchases. Unlike typical transactions, where you might enjoy a grace period before interest kicks in, interest on a cash advance often starts accruing immediately. This means that taking out even a small sum can end up costing more than you might expect if you don’t pay it off quickly.

Interest rates for credit card cash advances tend to be higher than standard purchase annual percentage rates (APRs). While actual figures can vary widely depending on the card issuer and your credit profile, here’s a general ballpark:

• Typical Range: Around 24% to 29% APR, sometimes even higher.

• Comparison to Purchase APR: Cash advance APRs often sit several percentage points above the rate you’d pay on regular credit card purchases.

Practical Tip: If you need cash urgently, consider alternatives like dipping into an emergency fund or arranging a short-term loan from a trusted source before opting for a cash advance.

2. Additional Fees That Add Up

Besides high interest rates, credit card companies typically tack on extra fees for using the cash advance feature. This can be a flat fee (e.g., $5 or $10) or a percentage of the amount you’re withdrawing. Some ATMs will also charge their own usage fees, meaning you’ll see multiple charges just for one transaction.

Real-Life Example: Imagine borrowing $300 via cash advance with a 5% transaction fee, plus an ATM fee of $3. You might be out $18 before you even leave the machine (5% of $300 is $15 + $3 ATM fee). That doesn’t even include the interest that starts building up immediately.

3. Lower Credit Score if Handled Poorly

Carrying high credit card balances can hurt your credit utilization ratio—the percentage of your total available credit that you’re actively using. When you take a cash advance, you’re usually pushing that utilization even higher. If you don’t pay down that balance quickly, your credit score can suffer, making it harder or more expensive to borrow money in the future.

Practical Tip: Monitor your credit utilization and aim to keep it under 30%. If you must use a cash advance, prioritize paying it off as soon as possible to minimize damage to your credit standing.

4. Increased Risk of a Debt Spiral

If you’re regularly relying on cash advances to cover everyday expenses, it may signal a larger issue with budgeting or debt management. Interest charges and fees can add up fast, potentially trapping you in a cycle where you’re using one cash advance to pay off the last. This perpetual cycle of debt can become overwhelming, both financially and emotionally.

Real-Life Example: Some individuals find themselves taking out cash advances each month to cover shortfalls in their budget. Over time, the mounting interest and fees can leave them in a deeper financial hole than when they started.

5. Safer Alternatives to Consider

Before turning to a cash advance, explore other avenues that might offer better rates or fewer fees. Here are a few options:

• Overdraft Protection: If you have a bank account with overdraft protection, this might be more affordable than a credit card cash advance.

• Line of Credit: A personal line of credit often has a lower interest rate and better repayment terms.

• Emergency Fund: Building a small emergency fund, even $500 or $1,000, can help you avoid having to borrow in urgent situations.

Practical Tip: If possible, set up an automatic transfer from your primary account into a dedicated "rainy day" fund with KOHO each payday. Even a modest contribution can add up over time and spare you from high-fee solutions later.

Benefits of using a cash advance on your credit card

1. Immediate Access to Funds

One of the most appealing aspects of a cash advance is how quickly you can get the money. When an unexpected bill pops up or you need cash in a hurry, a credit card cash advance can be a lifesaver. There’s no need for lengthy applications or approvals—you simply withdraw the funds at an ATM or bank.

Practical Tip: Before taking out a cash advance, confirm your credit limit and any associated fees. Knowing exactly how much you can safely withdraw (and how much it will cost) helps you avoid surprises.

2. No Additional Application or Approval

Cash advance doesn’t require any extra paperwork. As long as you have the available credit, you can access the money almost instantly. This convenience can be especially helpful if you’re traveling, facing an emergency, or simply need a quick financial bridge.

Real-Life Example: Imagine you’re on vacation and lose your wallet but still have your credit card. A quick cash advance could cover unexpected costs and without the hassle of applying for a new loan or jumping through banking hoops.

3. Universally Accepted Solution

Credit cards are accepted worldwide, and most ATMs let you withdraw cash against your available credit limit. Whether you’re in a big city or a small town, you can typically find a place to get the funds you need. This universality can be a lifesaver, particularly if you’re in a location where other payment methods aren’t widely available.

Practical Tip: Keep your card’s PIN and customer service number handy (preferably stored in a secure mobile wallet or password manager). This ensures you can swiftly address any issues if you have trouble withdrawing money in an unfamiliar place.

4. Ability to Cover Emergency Expenses

Sometimes, emergencies strike at the worst possible time. A cash advance allows you to address unexpected costs—like urgent car repairs or medical bills—without waiting for payday. It provides a quick financial cushion so you can handle immediate needs and worry about repayment later.

Real-Life Example: If your car breaks down two days before your paycheck arrives, a cash advance could get you back on the road without missing important life or work events.

5. Flexible Repayment (Within Your Credit Terms)

Although cash advances usually come with higher interest rates, you still have the flexibility to pay them back according to your credit card’s schedule. This means you can make minimum payments or pay off the balance in full to minimize interest. It’s not a one-size-fits-all approach; rather, it allows you to handle repayment in a way that fits your monthly budget.

Practical Tip: If you do use a cash advance, try to pay off that portion of your balance as quickly as possible. This approach minimizes the total interest you’ll owe, turning a potentially pricey option into a short-term financing solution.

Alternatives to cash advances

1. KOHO Cover: An Instant, Interest-Free Cash Advance

If you’re looking for a quick way to cover unexpected expenses without the high interest and fees of a traditional cash advance, KOHO Cover can be a game-changer. KOHO Cover offers qualified users an instant, interest-free cash advance—helping bridge short-term cash gaps without piling on costly credit card debt. All you need to do is apply and have your online cash advance in minutes!

2. Personal Loans or Lines of Credit

Taking out a personal loan or establishing a line of credit can be a more cost-effective option than a cash advance. Many banks and online lenders offer flexible repayment terms and competitive interest rates—often lower than what you’d pay on a credit card cash advance. While there is an approval process, it’s typically straightforward if you have decent credit.

Practical Tip: Shop around for interest rates and compare loan terms before committing. Even a small difference in APR can significantly reduce what you owe in the long run. Consider visiting KOHO’s line of credit page to explore options designed to fit your financial needs.

2. Overdraft Protection

If you’re facing a short-term cash crunch, consider enabling overdraft protection on your bank account. While there may be fees for overdrawing, these are often lower than those tied to a cash advance. This option can be a lifesaver if your bank account dips below zero unexpectedly.

Real-Life Example: Let’s say your checking account balance is $50, and you need $100 to cover an urgent bill. With overdraft protection, you’ll pay a single fee (for example, $10 to $15) instead of the immediate high-interest charges that come with a credit card cash advance.

3. Borrowing from Friends or Family

While it can be uncomfortable to ask, borrowing from a trusted friend or family member might be a more cost-effective solution—provided it won’t strain the relationship. Drawing up a simple agreement with repayment terms can help keep the process transparent and ensure both parties feel secure.

Practical Tip: Treat this arrangement just like any other loan. Set clear expectations around the repayment schedule and stick to them. Communication is key to avoiding misunderstandings.

4. Building an Emergency Fund

If you’re able to plan ahead, nothing beats having a safety net of your own. An emergency fund—whether it’s $500 or a few months’ worth of expenses—can spare you from high-interest debt solutions. Even small, regular contributions to a dedicated savings account can add up over time.

If you're looking for a secure place to build your emergency fund, KOHO's Personal Account offers the perfect solution with its Vault feature. Unlike regular savings accounts where you might be tempted to dip into your emergency savings, KOHO's Vault creates a deliberate separation between your spendable money and your safety net.

The Vault is specifically designed to protect your emergency fund from accidental spending. Once you move money into your Vault, it stays there until you deliberately move it back to your Spendable balance—making it ideal for emergency savings that should only be touched when needed.

Real-Life Example: Meet Sarah, who deposits $25 weekly into her KOHO Vault. After a year, she accumulated $1,300 in her emergency fund. When her laptop stopped working, she didn't need a cash advance or credit card—she simply moved money from her protected Vault to her Spendable balance and bought a replacement without any financial stress.