What Is a Cash Advance on a Credit Card? Pros, Cons, Alternatives

A cash advance is a service that credit card companies offer enabling consumers to withdraw cash by borrowing against their credit card. While you can use credit cards to purchase many types of goods and services, some situations require cash. If you need cash for an emergency or unexpected expense and are considering using a cash advance, here’s what to expect.

How does a credit card cash advance work?

The most common way to get a cash advance is to use a credit card that offers this feature. There are a few ways to access cash using your credit card, depending on the carrier.

• ATM. Some credit cards allow you to withdraw cash at an ATM using a personal identification number (PIN). If you don’t know the PIN associated with your credit card, contact your card company.
• Convenience checks. Some credit cards offer convenience checks, which you can use to pay bills or cash at a bank.
• Bank. You can also take your card directly to a bank and ask the teller for a cash advance. The teller can use your card to make your transaction and give you the requested cash.
• Online transfer. Some credit card companies allow you to initiate an online transfer from your line of credit to your checking account.

Keep in mind that your credit card likely has limits on the amount of cash you can take out with a cash advance.

Cash advance credit card options

Many different credit card carriers offer cash advances. However, the terms, fees, and interest rates will vary. Some credit cards have specific withdrawal limits. Credit card companies might also charge a different interest rate for cash advances than for regular purchases. If you’re considering using a cash advance from a credit card, it’s vital to understand the terms and conditions of your card carrier before doing so.

In an emergency it’s tempting to withdraw cash quickly. However, taking on unexpected fees and interest charges when you’re already low on funds can add to financial stress down the line. That’s why it’s important to think through your options clearly.

Credit card cash advance: pros and cons

Here are some pros and cons to be aware of before deciding to take out a cash advance.

Benefits of a cash advance from a credit card

A cash advance does have some benefits. They include:.

Immediate access to funds

Unlike loans, you can access cash immediately when you use a cash advance. You can typically go to a bank or an ATM and have cash in your hand within minutes.

No credit check is required

Typically, when it comes to a cash advance, there will not be a credit check. You borrow against a credit card you already have, so there is no need for one.

If you’re seeking a merchant cash advance, however, some lenders may require a credit check. Others may prioritize your business's revenue or your credit profile.

Convenience

If you were to apply for a traditional loan, you would have to provide documentation, fill out an application, and wait—likely several days or longer—for a decision before getting your funds. A cash advance is much more convenient, because you simply use a credit card that you already have to get cash quickly.

Disadvantages of a credit card cash advance

While a cash advance is convenient, quick, and typically does not require a credit check, it’s important to know the disadvantages that come with it.

Limited withdrawal amounts

If you want a cash advance, you will not be able to take out more cash than the amount of credit available on the card. If your card is maxed out, you won’t be able to withdraw cash at all.

If you do have available credit on the card, you may still only be allowed to withdraw a percentage of your card’s total credit limit, as many companies set limits on cash advances. Ultimately, the amount an individual can withdraw will vary, depending on their personal situation.

Potential impact on credit score

While taking a cash advance won’t negatively affect your credit, when the amount of credit you are using rises, it can negatively affect your credit score. Credit utilization is 30% of your credit score.

High interest rates and fees

The most significant negative of a credit card cash advance is the high interest rate. Each credit card company chooses the interest rates and fees it charges. Consumers should read the fine print before taking out a cash advance or using convenience checks. (If you have convenience checks, the interest rate on them will likely be in the information on the first page or two of the check.)

Don’t assume that your interest rate for a cash advance or convenience checks will be the same as the interest rate on your credit card for purchases; it is often much higher. Determine the interest rate and the added cost of borrowing funds before taking a cash advance.

Alternatives to credit cards to get a cash advance

Because of the high-interest rates and fees on cash advances, it’s important to consider alternatives to cash advances. A cash advance should be a last resort in the case of an extreme emergency. If you have time and availability, consider one of these alternatives first.

Loans

If you have a solid credit score, you could be eligible for a personal loan. These typically have much better interest rates than cash advances, and many companies can deposit funds in your bank account quickly. You should shop around to find the companies with the best personal loan rates. There are also cash advance apps - with no credit checks, interest or mandatory fees - which are worth checking if you need to get quick money until your next pay day.

Borrow cash

If you need cash quickly, asking a friend or family member for a temporary loan could be a better alternative than getting a cash advance. If that’s not an option, consider taking something valuable to a pawn shop and either selling it for cash or pawning it. Pawning means you can get cash for a certain period while the shop holds your item as collateral. You can get it back by repaying the loan plus any fees before the period ends.

Emergency fund

Having an emergency fund in a high-yield savings account helps you avoid paying significant fees and high interest rates to borrow cash quickly. If you don’t have one, make it your next financial goal.

Payment plan

If you have an unexpected expense, such as a hospital visit or car repair, first ask the company or hospital if it offers payment plans. Hospitals might even have financial-assistance programs if you meet specific income requirements.

Borrow against your 401(k)

Depending on your company’s plan, you may be able to borrow from your 401(k) if you have funds there. You will have to pay it back with interest, but you will be paying that interest to yourself. It’s not good to borrow from your future—and there are rules about what constitutes a hardship withdrawal—but it is an option to consider in an emergency.

When is a good time to get a cash advance?

Because cash advances come with high interest rates and fees, you should only get one in an extreme emergency when no other options are available. A cash advance should be a last resort.

TIME Stamp: Read the fine print and understand the costs of a cash advance

You can use a cash advance to borrow money if you need cash quickly due to an emergency or unforeseen circumstance. However, if you are considering getting a cash advance, it’s important to know the pros and cons of this type of lending.

Cash advances can be helpful in extreme situations, but consumers should be aware of high interest rates and fees. Other forms of borrowing are preferable to cash advances. Still, if you must get one because you have no other options, read the fine print before making this decision and call your credit card provider if you have any questions.

Frequently asked questions (FAQs)

How do you pay off a cash advance on a credit card?

Your cash advance will appear as a line item on your credit card activity. You would pay it off with your monthly credit card payment, just like the other items listed.

What is the difference between a cash advance and a payday loan?

A cash advance is taken against the available credit on your credit card, while a payday loan is offered by an individual lending institution. You do not have to have a credit card to get a payday loan.

Interest rates and fees for a cash advance are generally quite high. Payday loans will cost you even more. They usually charge a percentage or dollar amount for each $100 borrowed. It is often the equivalent of nearly a 400% APR for a two-week loan. Neither is a smart way of borrowing money.

How do I avoid cash advance fees?

It can’t be done. The only way to avoid cash advance fees is to borrow money using a different method.