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Credit card cash advances are a convenient way to access cash quickly. True.

Credit card cash advances are considered one of the most expensive ways to borrow money. Also true.

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 scores if not handled responsibly.

Here are the facts you should know before you decide to take a cash advance on your credit card.

What Is A Credit Card Cash Advance?

A credit card cash advance is a short-term loan that lets you withdraw money from an ATM using your credit card. The loan will be withdrawn from your credit card cash advance limit and you must pay it back in full, with interest, later on.

Basically, you’re using your credit card to borrow cash from the credit card provider, in exchange for a fee. That fee can be high, potentially making the price of the transaction more expensive than a regular credit card purchase. So, it’s better to only take out a credit card cash advance when it’s 100% necessary, like during a financial emergency.

What Problems Do Credit Card Cash Advances Have?

Credit card cash advances can be helpful but they come with a few downsides, such as:

Cash Advance Fees

Each credit card cash advance comes with a flat fee of around 3% – 5% (of the amount you withdraw), depending on the card type and provider. So, if you borrow $100, you would pay $3 – $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 FeeFee Amount
ATM network access feeIn Canada: $2.00 to $3.00
International: $2.00 to $5.00
Convenience feeVaries (usually between $1.00 and $2.00)
Currency exchange fees2.5%

High Interest

When you withdraw cash from your credit card, you’ll also be charged interest on the amount you take out. The interest rate on your cash advance can end up being higher than your credit card’s normal rate. Most credit cards have rates of about 19.99% on everyday purchases and rates closer to 22.99% – 24.99% on cash advances. 

No Grace Period 

With a regular credit card purchase, interest only starts to accrue after about 21 days. 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.

Lower Credit Limit

Cash advances are withdrawn from your credit limit, which means you could have less credit for other expenses. Some credit cards also have a separate cash advance limit that’s lower than their regular credit limit.   

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. These points and cash back are nice to have, since they can offset some of the interest you usually have to pay.     

Can Affect Your Credit Score

To get a credit card cash advance, you may need to go through an additional credit approval process. On top of that, cash advances can cause damage to your credit score over time, because they can affect the following:

  • Credit Utilization Ratio – Having a higher credit utilization rate (over 30% can be bad for your score). A credit card cash advance can increase the amount you’re borrowing relative to your credit card cash advance limit. This can negatively affect your credit score. 
  • Payment History – A credit card cash advance means you’ll be carrying more debt, which can lead to missed payments and future penalties. The more missed or late payments you have, the more it can negatively affect your credit. 

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. 

For example, let’s assume you borrow $500, which has a 1% ($5) cash advance fee and a credit card cash advance rate of 22.99%. 

If you repay the full amount in 60 days, your total cash advance cost would be $523.89.  

  • 22.99% / 365 days = 0.0006298
  • 0.06298 x $500 = 31.49
  • 31.49 x 60 days = $1,889.4
  • $1,889.4 /100 = $18.89
  • $18.89 + $5 = $23.89

Types Of Credit Card Cash Advances

In Canada, there are at least 5 different credit card cash advances you can make:

  • Checkout & 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 cash 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 since more interest will apply to your debt with every day that it goes unpaid. Cash advances only make sense when you absolutely need physical cash and you can afford to pay it back right away.

Thankfully, if you look hard enough, you can find credit cards in Canada that come with zero cash advance fees, in which case you would only have to think about the interest.     

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, such as: 

Personal Loan

Similar to a credit card cash advance, a personal loan involves borrowing a specific sum of money that must be repaid with interest. However, 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 convenient but don’t let the lure of cash advances potentially ruin your credit history, research different options and choose what’s right for you. Financial problems can be hard and unpleasant to deal with but the sooner your start the sooner you’ll be on your way to financial freedom.

Credit Card Cash Advance FAQs

Are cash advances bad for your credit score?

Technically, credit card cash advances don’t have a direct impact on your credit. The way you handle your cash advance is what can cause an effect. For instance, the additional fees and interest associated with cash advances can put you in debt, which can lead to missed payments, late penalties and damage to your credit score soon after. 

What’s the difference between a credit limit and a cash advance limit?

A credit limit is the total amount of credit available on your credit card account. Every time you make a purchase, that limit decreases and your monthly balance goes up (the opposite occurs after you make a payment). On the other hand, a cash advance limit refers to the maximum amount of money that you can withdraw from an ATM using your credit card.  

Do my credit card payments go to my cash advance or credit card bill first?

In Canada, credit card companies generally start by assigning payments according to the balances with the highest interest rates. Since cash advances tend to feature higher interest rates than traditional purchases, chances are that your payments will be automatically assigned to your cash advance bill first.

Do bill payments count as cash advances?

Bill payments don’t usually qualify as cash advances. When you give someone else permission to charge your card at specific times like during a pre-authorized payment plan, it’s not considered a cash advance. Then again, if you withdraw cash from an ATM using your card to pay a bill, it’ll count as a cash advance.
Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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