If you need fast cash and don’t have the time or the credentials to take out a loan, then a credit card cash advance may be an option. That said, this is a relatively expensive way to borrow money. When it comes to using your credit card like a personal loan, comparing the pros and cons is key. Credit card cash advances can lead to unmanageable credit card debt and can negatively affect your credit score if not handled responsibly.
Here are the facts you should know before you decide to take a cash advance on your credit card.
Key Points
- A credit card cash advance allows you to take out cash from your credit card account.
- You can use your credit card at an ATM or visit a bank to request a cash advance.
- Credit card cash advances typically have a higher interest rate compared to regular purchase rates.
- Due to the high costs of cash advances, it’s recommended only to use them in emergency situations.
What Is A Credit Card Cash Advance?
A credit card cash advance is a short-term loan that lets you withdraw cash from an ATM using your credit card. The money withdrawn is charged interest, which starts to accrue on the day of the withdrawal.
Cash advances can also apply to certain cash-like transactions, such as buying lottery tickets, casino chips, and cryptocurrency. Rates for cash advances are often higher than your regular credit card rate.
Learn more: How Do ATMs Work In Canada?
How Much Can You Withdraw As A Credit Card Cash Advance?
Cash advance limits on how much you can withdraw depend on the credit card you have. However, the cash advance limit is generally lower than their regular credit limit and can be a percentage of your credit card limit.
For example, if your credit card limit is $5,000, and your cash advance limit is 30% of that, you’d be able to withdraw up to $1,500 in cash.
What Is The Interest Rate On A Credit Card Cash Advance?
When you withdraw funds from your credit card, you’ll also be charged interest on the amount you take out. The interest rate on your cash advance is usually higher than your credit card’s normal rate. Most credit cards have rates of about 19.99% on everyday purchases, while cash advance rates can be 22.99% to 27.99%. Again, interest starts to accrue immediately.
Can You Get A Credit Card Cash Advance Online?
To get a credit card cash advance online, simply log in to your banking account, choose the option to transfer funds from your credit card to your chequing account, and select the amount you want to transfer. Once you confirm the transaction, the funds will be deposited into your account shortly after.
Alternatively, you can visit a bank machine to withdraw cash directly from your credit card account. Then, you can deposit the funds into your chequing account. You may also visit a bank teller in person or call your bank over the telephone to request to have funds transferred from your credit card account to your chequing account.
How Much Can A Credit Card Cash Advance Cost?
Before you apply for a cash advance, make sure to read your credit card agreement carefully and figure out any interest rates or fees that are associated with it.
To help you understand how much a credit card cash advance could cost you, let’s illustrate using an example. Let’s say you withdraw $500 from your credit card, which has a 5% ($25) cash advance fee and a credit card cash advance rate of 29.99%:
- Cash advance amount: $500
- Cash advance fee: $25
- Cash advance rate: 29.99%
If you repay the full amount in 60 days, your total cash advance cost will be calculated as follows:
- $500 x 0.2299 = $149.95 (total amount of interest you’d pay in one year)
- $114.95 ÷ 365 = $0.41 (total amount of interest you’re paying each day)
So, if you took 60 days to pay back the $500 cash advance, it would cost you $24.65 in interest ($0.41 x 60), plus $25 for the cash advance fee. The total payment required would be $549.65 ($500 + $24.65 + $25).
When Do You Have To Repay A Credit Card Cash Advance?
Cash advance withdrawals are added to your credit card balance. So, when you make a payment, the amount it split proportionally between your cash advance and regular credit card purchases. You can’t simply pay off the credit card cash advance first, then repay the remaining purchase balance. If you want to minimize interest, don’t wait for your statement to come in. Instead, consider paying off your debt (including both purchases and cash advances) early.
Cash advance interest rates are typically higher than purchase rates. If you don’t pay off the entire balance each month, you’ll continue to pay the higher cash advance interest rate until the full balance is repaid.
So, your goal should be to pay off the entire balance – including both the cash advance and the purchase portions – at the end of the billing period to avoid accruing more interest.
Benefits Of A Credit Card Cash Advance
There are notable perks to tapping into your credit card limit when money is tight:
Quick Access To Cash
Perhaps the key advantage to a credit card cash advance is the fact that you can get access to the money immediately. Since you already have a credit card account, all you need to do is visit a bank machine to withdraw money from your account. This can be especially handy in emergencies where cash is needed, and no other options are available.
Convenience
There’s no need to visit a lender or complete a loan application. All you need to do is visit your bank or ATM m to access the cash.
Drawbacks Of Credit Card Cash Advances
Credit card cash advances can be helpful but they come with several downsides:
Cash Advance Fees
Each credit card cash advance comes with a flat fee of around 3% to 5% (of the amount you withdraw), depending on the card type and provider. For example, if you borrow $100, you would pay $3 to $5 for it, right off the bat.
ATM Fees
If you withdraw the cash advance from a third-party ATM (one that’s not associated with your bank or card provider), you’ll also have to pay its service fees, which will vary according to the supplier and location of the ATM. This usually ranges from $2 to $5.
Types Of ATM Fees
| Type of Fee | Fee Amount |
| ATM network access fee | In Canada: $2.00 to $3.00 International: $2.00 to $5.00 |
| Convenience fee | Varies (usually between $1.00 and $2.00) |
| Currency exchange fees | 2.5% |
Learn more: Canadian Bank Fees: The Good, The Bad, and The Ugly
No Grace Period
With a regular credit card purchase, interest only starts to accrue after about 21 days (or longer depending on the credit card issuer). If you cover your balance before that, you won’t pay interest. However, credit card cash advances accumulate interest immediately. This means that you will start paying interest on the cash advance amount right away.
No Credit Card Rewards
When you make purchases using your credit cards, you can usually earn cash back or points on it, which you can later redeem for various rewards. Cash advances, on the other hand, don’t qualify as eligible purchases, so you can’t earn cash back or points on them.
Can A Credit Card Cash Advance Affect Your Credit Score?
Cash advances may negatively affect your credit score over time in the following ways:
- Credit Utilization Ratio: Having a higher credit utilization ratio (over 30%) can negatively affect your credit score. When you borrow money against your credit card limit, you’ll increase this ratio, which can be a bad thing for your score.
- Payment History: Cash advances carry high fees and interest rates. If you have trouble repaying a high-interest cash advance, late or missed payments will hurt your score.
- More Debt: A credit card cash advance means you’ll be carrying more debt. Higher outstanding balances can negatively affect your credit score if not managed responsibly.
Types Of Credit Card Cash Advances
In Canada, there are a few different credit card cash advances you can make:
- Checkout Transactions: You can request cash back when making a purchase with aj retailer at the point of sale. Merchants may charge an equal amount to the cash you want back. As such, the cash advance interest doesn’t apply because it’s considered a regular merchant charge. Keep in mind that individual merchants can charge their own fees.
- ATM Transactions: You may use your credit card to withdraw money from an ATM or when checking out at available locations. This can result in varied costs, with additional fees applied to non-network ATM transactions.
- Credit Card Cheques: Some credit card companies will offer you cheques that you can use to withdraw money from your accounts at any time. Due to the costs involved, this is another service that’s best reserved for financial emergencies.
- Traveller’s Cheques & Foreign Money: If you’re going on a trip outside the country, you might want to get a credit card that’s meant for travelling, because buying traveller’s cheques or foreign currency is considered a cash advance too.
Should You Get A Credit Card Cash Advance?
While they may be cheaper upfront than some other financial solutions, credit card cash advances have several problems. They certainly aren’t free, and more interest will apply to your debt with every day that it goes unpaid. Given this, you should only consider a credit card cash advance in some situations, such as the following:
- You urgently need cash for an unexpected expense
- You have no access to other funds
- You want to avoid late fees on an overdue bill
- You can pay off the cash advance within a few days
Alternatives To A Credit Card Cash Advance
If a credit card cash advance seems like the wrong choice for your financial needs, there are some safer and potentially less expensive alternatives you can try:
Personal Loan
A personal loan involves borrowing a specific sum of money that must be repaid with interest. Compared to credit card cash advances, personal loans typically have better interest rates and longer, more flexible terms, making them a more affordable and economical option.
Chequing Account Overdraft
For a fee, some banks offer overdraft, which lets you use your debit card to withdraw more cash than you have in your account. You might also be able to sign up for a bank account with overdraft protection or no overdraft fees.
Credit Card Purchase
Carrying a monthly balance can be cheaper and more beneficial than getting a cash advance. This is particularly true when it comes to credit cards with lower interest rates, cashback and other rewards.
Bottom Line
Credit cards are quick and convenient, which can be very attractive in an emergency situation. But don’t let the lure of cash advances potentially ruin your credit history. Be sure to carefully consider your situation and research different options to see what’s right for you.
