A cash advance is when you borrow money against your credit card's line of credit, usually at an ATM or through your bank

You walk to an ATM, insert your credit card, and withdraw cash the same way you would from a debit card. The money hits your hand when ready. But unlike a debit card withdrawal, that cash is a loan. Your credit card company is lending you money at a rate and under terms that are almost always worse than a regular purchase.

The cash advance appears on your credit card statement as a separate transaction from your regular purchases. It has its own interest rate (usually higher), its own payment schedule, and sometimes its own fees. You pay interest on a cash advance from the moment you withdraw it — there is no grace period like there often is for purchases.

Key Takeaways

  • Cash advances charge interest when ready with no grace period, unlike credit card purchases which may have 21 to 25 days before interest starts.
  • The interest rate on a cash advance is typically 3 to 5 percentage points higher than your card's regular purchase rate.
  • You pay an upfront fee of 3 to 5 percent of the amount withdrawn, charged the moment you take the cash.
  • Cash advances report to credit bureaus and count toward your credit utilization, which can lower your credit score.
  • Paying off a cash advance takes longer because payments go to your regular purchases first, not the cash advance balance.

How the fees and interest work

When you take out a cash advance, your credit card company charges you two separate costs. The first is a cash advance fee, which is a percentage of the amount you withdraw — usually 3 to 5 percent. If you withdraw $500, you might pay $15 to $25 just to get the cash. Some cards have a flat minimum fee instead, like $5 or $10, which means small withdrawals cost proportionally more.

The second cost is interest, and it starts accruing the day you withdraw the money. Your cash advance interest rate is typically 3 to 5 percentage points higher than your regular purchase rate. If your card charges 18 percent on purchases, the cash advance rate might be 23 or 24 percent. That interest compounds daily, so the longer you carry the balance, the more you owe.

Unlike a purchase, there is no grace period. If you make a regular purchase on Monday and pay it off by the due date, you pay no interest. A cash advance taken on Monday starts charging interest when ready, even if you pay it back the next day.

Where you can get a cash advance

The most common way is at an ATM using your credit card. You insert the card, enter your PIN (which you may need to set up with your card issuer first), and withdraw cash up to your available credit limit. Some ATMs charge an additional fee — $2 to $5 — on top of your credit card company's cash advance fee.

You can also get a cash advance at a bank branch, either your card issuer's branch or another bank. Walk in, show your credit card and ID, and ask for a cash advance. The bank will charge you the same cash advance fee your card issuer charges, plus sometimes an additional fee for the transaction.

A third option is a convenience check. Your credit card company mails you checks that draw against your credit line. You write a check to yourself or to someone else, deposit it, and the amount becomes a cash advance on your card. These checks carry the same fees and interest rates as ATM withdrawals.

How cash advances affect your credit score

A cash advance counts toward your credit utilization ratio, which is the percentage of your available credit you are currently using. If you have a $5,000 credit limit and take a $1,000 cash advance, your utilization jumps to 20 percent. Credit scoring models penalize high utilization, so even a single cash advance can lower your score by a few points.

The cash advance also appears on your credit report as a separate account type — a cash advance loan rather than a revolving purchase account. This shows lenders that you borrowed against your credit card, which some view as a sign of financial stress. The impact is usually small if it is a one-time event, but repeated cash advances can signal to lenders that you are relying on expensive short-term borrowing.

Why paying off a cash advance takes longer

When you make a payment to your credit card, the payment goes to your lowest-interest balance first. If you have a $500 purchase at 18 percent and a $500 cash advance at 24 percent, your payment goes to the purchase first. This means your cash advance keeps accruing interest while you are paying down the cheaper debt.

Some card issuers let you specify where a payment goes, but most do not. You have to pay off the entire purchase balance before your payment even touches the cash advance. This is why a cash advance can feel like it takes forever to disappear, even if you are making regular payments.

When a cash advance might make sense

A cash advance is expensive, so it should only be a last resort. The only scenario where it might be worth considering is if you need cash when ready and every other option is closed. For example, if you have an emergency and cannot access your bank account, and a cash advance is cheaper than a payday loan or overdraft fee, it might be the lesser of bad options.

Even then, the math usually does not work in your favor. A $500 cash advance at 5 percent fee plus 24 percent interest costs you $25 upfront plus roughly $10 in interest if you pay it back in one month. A payday loan might cost $75 for the same $500, which is more expensive. But if you cannot pay back the cash advance in one month, the interest compounds and the payday loan becomes the cheaper choice.

For most situations, alternatives are better: asking for a loan from family, using a personal loan from a bank or credit union, or putting the expense on a 0 percent introductory purchase card if you have access to one.

Frequently Asked Questions

Do I need a PIN to use my credit card for a cash advance?

Yes, most ATMs require a PIN. If you have never set one up, contact your card issuer to create one before you need it. Some banks let you set a PIN online; others require a phone call. At a bank branch, you typically do not need a PIN — just your card and ID.

Can I get a cash advance if my credit limit is low?

Yes. Your cash advance limit is usually the same as your credit limit, though some issuers set it lower. You can withdraw up to that limit, but remember that the withdrawal counts against your available credit when ready. If your limit is $1,000 and you withdraw $800, you have only $200 left to spend on purchases.

What happens if I only make the minimum payment on a cash advance?

The balance shrinks very slowly because most of your payment goes to interest rather than principal. A $500 cash advance at 24 percent interest with a minimum payment of 2 percent of your balance takes roughly 30 months to pay off and costs you an extra $300 or more in interest. Pay as much as you can afford each month to avoid this trap.

Is a cash advance the same as a balance transfer?

No. A balance transfer moves debt from one card to another, usually at a lower rate. A cash advance borrows money against your credit line and gives you cash. Balance transfers are for existing debt; cash advances are for getting new cash. Both charge fees and have high interest rates, but they work differently.