What happens when you withdraw cash using a credit card

Getting cash from a credit card is called a cash advance. Unlike a purchase, where the merchant charges your card and you pay the balance later, a cash advance puts money directly into your hand or bank account — and starts charging you interest when ready, usually at a higher rate than regular purchases.

The moment you take the cash, you owe it back. There is no grace period like there is with purchases. If your card charges 18% interest on purchases, it might charge 24% or higher on cash advances. You also pay an upfront fee — typically 3% to 5% of the amount you withdraw — just for taking the cash out.

This matters because a $500 cash advance can cost you $15 to $25 in fees alone, plus interest that starts accruing the same day. If you carry that balance for a month, you could owe an additional $10 or more in interest charges.

Key Takeaways

  • Cash advances charge interest from day one with no grace period, and the interest rate is usually higher than your purchase rate.
  • You pay an upfront fee of 3% to 5% of the amount withdrawn, charged when ready to your card.
  • You can get cash at an ATM using your credit card PIN, at a bank teller, or through a cash advance check from your card issuer.
  • Cash advances should be a last resort because the total cost — fees plus interest — makes them one of the most expensive ways to borrow money.

The three ways to take a cash advance

ATM withdrawal is the fastest method. You insert your credit card into an ATM, enter your PIN, and withdraw cash just as you would from a debit card. The ATM will show you the fee upfront before you confirm the transaction. Most credit cards come with a PIN, but if you do not have one, you can request it from your card issuer's website or by calling the number on the back of your card.

Bank teller withdrawal works if you visit a bank in person. You bring your credit card and ID to a teller, tell them you want a cash advance, and they process it for you. This method is useful if you need a larger amount or if the ATM has a daily withdrawal limit that is too low. The teller will tell you the fee before completing the transaction.

Cash advance checks are physical checks your card issuer mails to you. You can deposit them into your bank account or cash them at a check-cashing service. These checks work like a cash advance — the same fees and interest rates explore — but they give you a way to move money into your checking account without visiting an ATM or bank. Not all card issuers offer them, so check your card's terms or call the issuer to ask.

Why cash advances cost so much

A cash advance combines three separate costs that make it expensive. First is the cash advance fee, which your card issuer charges upfront. This is usually 3% to 5% of the amount you withdraw, with a minimum fee of $5 to $10. A $200 advance costs $6 to $10 in fees alone.

Second is the interest rate, which is higher for cash advances than for purchases. While a purchase might be charged at 18% annual interest, a cash advance on the same card might be charged at 24% or 25%. This higher rate applies only to the cash advance balance, not to your regular purchases.

Third is the no grace period rule. When you make a purchase, you typically have 21 to 25 days before interest starts charging. With a cash advance, interest starts the day you withdraw the money. If you pay it back within a few days, you might owe only a few dollars in interest. If you carry it for a month, the interest cost grows quickly.

A $500 cash advance at 25% annual interest costs about $10 in interest per month if you do not pay it down. Add the $15 to $25 upfront fee, and you have already paid $25 to $35 just to borrow $500 for a month.

How cash advances affect your credit and your card balance

A cash advance counts as a separate balance on your credit card statement. Your statement will show your purchase balance, your cash advance balance, and any other balances separately. This matters because your card issuer applies your payments to the lowest-interest balance first — usually your purchases — and the cash advance balance sits there accruing interest at the higher rate.

If you owe $1,000 in purchases at 18% and $500 in a cash advance at 25%, and you make a $500 payment, that payment goes toward the purchase balance first. Your cash advance keeps charging the higher interest rate until you pay it off completely.

A cash advance also affects your credit utilization ratio, which is the percentage of your available credit that you are using. If your card has a $5,000 limit and you take a $500 cash advance, your utilization jumps to 10%. High utilization can lower your credit score temporarily. The effect is usually small if you pay it back quickly, but it is another reason to avoid cash advances unless you truly need them.

When a cash advance might make sense

A cash advance is almost never the best choice, but there are rare situations where it is the least bad option. If you need cash urgently and have no other way to get it — no savings, no access to a personal loan, no friends or family who can help — a cash advance is faster than waiting for a loan decision.

A cash advance also makes sense if you can pay it back within a few days. If you know you will have money coming in soon and just need to bridge a gap, the interest cost might be small enough to justify it. For example, if you need $200 to cover a bill and you will have a paycheck in three days, the interest cost might be less than $2.

In almost every other situation, there are better options. A personal loan from a bank or credit union usually charges less interest. A payment plan with the person or company you owe money to might let you delay payment without any interest. Even a payday loan, which is expensive, is sometimes cheaper than a cash advance if you can pay it back quickly.

Alternatives that cost less

A personal loan from a bank, credit union, or online lender usually charges 6% to 36% interest, depending on your credit score. This is lower than most cash advance rates, and you have a set repayment schedule instead of an open-ended balance. The downside is that approval takes a few days to a week, so it does not work if you need cash today.

A balance transfer to a different credit card might offer 0% interest for 6 to 21 months if you have good credit. This works if you want to move an existing cash advance balance to a cheaper card, not if you need cash right now. You still pay a balance transfer fee of 3% to 5%, but the 0% interest period saves you money if you pay the balance down during that time.

A line of credit from your bank — if you have one — usually charges less interest than a cash advance and lets you draw money as you need it. You only pay interest on the amount you actually use, not on the full available credit.

If you have a 401(k) or similar retirement account, you might be able to borrow against it. The interest rate is usually lower, and you pay the interest back to yourself rather than to a lender. The downside is that if you leave your job, you may have to repay the loan quickly or face penalties.

How to avoid needing a cash advance

The best protection against cash advances is an emergency fund — even a small one. If you have $500 to $1,000 set aside for unexpected expenses, you can cover most emergencies without borrowing. Start by setting aside whatever you can afford, even if it is $25 per paycheck. After a few months, you will have a cushion.

If you do not have savings yet, look at your monthly budget to find money you can redirect. Cutting one subscription service, reducing dining out, or finding a lower insurance rate can free up $20 to $50 per month. That money, moved to a separate savings account, builds your emergency fund without requiring you to borrow.

You can also set up a payment plan before you fall behind. If you know a bill is coming and you cannot pay it in full, call the company and ask about a payment plan. Most utilities, medical offices, and creditors will work with you rather than send your account to collections.

Frequently Asked Questions

Can I use a credit card to withdraw cash at any ATM?

Yes, you can use your credit card at most ATMs that accept Visa or Mastercard, but you will pay a fee. Your card issuer charges a cash advance fee, and the ATM operator may charge an additional ATM fee of $2 to $3. Always check the fee disclosure on the ATM screen before you confirm the withdrawal.

What is the difference between a cash advance and a balance transfer?

A cash advance gives you physical cash or deposits money into your bank account, and charges a higher interest rate when ready. A balance transfer moves debt from one card to another, usually at a lower or 0% introductory rate. Balance transfers are for moving existing debt; cash advances are for getting new cash.

Will a cash advance hurt my credit score?

A cash advance can lower your score temporarily because it increases your credit utilization ratio. The effect is usually small and goes away once you pay the balance down. However, if you carry the cash advance balance for months, the ongoing interest charges and high utilization will keep your score lower.

Can I take a cash advance if my card is maxed out?

No. A cash advance counts toward your credit limit, so you need available credit to take one. If your card is maxed out, you cannot take a cash advance. You would need to pay down your balance first or request a credit limit increase from your card issuer.

What happens if I cannot pay back a cash advance?

The balance stays on your card and continues to charge interest. If you do not pay it, the interest compounds and your balance grows. After several months of non-payment, your card issuer may close your account and send it to a collection agency, which will damage your credit score and may pursue legal action to recover the debt.