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Cash advances: How they work and what they cost

If you can't avoid taking out a cash advance, there are ways to reduce the interest you'll pay.

Sarah Tew/CNET

If you're experiencing a temporary shortage of cash, an easy move might be to reach for your credit card for a cash advance.

While it's a quick way to get a hold of some money, the fees can be quite steep and much higher than the regular APR on your card. While the average interest rate for credit cards hovers at 16.22%, the average rate for a cash advance is 24.80%.

Wondering if getting a cash advance might be a good choice for you? Here's everything you need to know.

What is a cash advance and how do they work?

A cash advance is pretty much a short-term loan you can tap into through your credit card. Instead of getting a loan through a bank or online lender, you're borrowing against your credit line. 

The credit line for a cash advance is usually lower than your credit line for standard purchases -- and the APR is typically much higher. Interest typically starts accruing right away with no grace period, meaning the time between the end of your billing cycle and when your next payment is due. 

You can access cash advance funds in a number of ways: by withdrawing the cash from an ATM, by withdrawing it from a bank by showing your credit card or by way of a blank convenience check provided by the credit card issuer.

The amount of the cash advance will show up on your credit card statement. And just like with standard purchases you put on your card, you'll make monthly payments until the balance is paid off. 

Here's how much a cash advance could cost you

Interest isn't the only fee to worry about with cash advances -- expect to find a few other fees tacked on. 

First, there's usually a cash advance fee, which can range from 3% to 5% of the amount or a minimum charge of $5 or $10. For example, if your cash advance is $200, expect to dole out $6 to $10 in fees. If your cash advance is $400, you can anticipate paying $12 to $20. 

Another common fee that you might get pegged with is an ATM fee. The average ATM transaction fee in 2020 was $3.08.

Let's take a closer look at how much a cash advance could cost you in interest and fees.

Say you request a cash advance of $600 with a 24.8% APR, and you take that money out of an ATM. The cash advance fee alone could be up to $30. Plus, there's an ATM fee of $3.50. On Day 1, you're already getting dinged with $33.50 in fees.

Folding in interest charges, if you pay back that cash advance in 30 days, you'll be paying $12.23 in interest, which brings the cost of your cash advance to $45.73. If it ends up taking 60 days to pay off the loan, your total interest becomes $24.46, bringing the grand total to $57.96. If it takes you six months to pay off the balance, the total cost of the loan could be as much as $107.90 on top of the principle.

It's in your best interest to pay off the balance on your cash advance as soon as you can. Otherwise, you could end up swimming in interest fees. 

Risks of cash advances 

The main risk when taking out a cash advance is the potentially high interest rates you might end up paying. Should it take you a while to pay off your balance, it could cost you a pretty penny in interest fees alone, not to mention any other fees added on to them.

If you're already carrying a credit card balance and can't pay off your cash advance right away, it'll make it that much harder for you to pay off your cash advance in a reasonable amount of time. That means this short-term solution could end up costing you significantly in the long run. 

Does it ever make sense to take a cash advance?

While a cash advance can be quite expensive and do more financial harm than good, there are a few times when it might be a sensible option:

  • If you're rebuilding credit: If your credit history is a bit bumpy, you might not have access to other types of financing, such as a personal loan. That's because personal loans usually require good credit. 
  • You have a high debt-to-income ratio: If you have a high DTI ratio, you might not be able to get approved for a personal loan, or at least one with favorable rates and terms.
  • If you don't have time to shop around: As other financing options require you to do some research to compare rates, terms and loan amounts, if you need that money as soon as possible, it might make sense to opt for a cash advance. You won't need to apply for a new credit card or loan, and you can get the money through an ATM.
  • If you can pay it right away: If you have a very temporary shortfall of cash or are experiencing a cash-flow gap, a cash advance means you can count on receiving money in the very near future. 

Alternatives to cash advances

  • Personal loan: If you have good credit and a stable income, you could qualify for a personal loan. Some personal loans allow you to borrow a minimum of $1,000 and grant you access to the funds quickly after your application is approved. However, when applying the lender will do a hard pull of your credit. And as personal loans are unsecured (you don't need to offer collateral to back it up), you may need a good credit score to get approved.
  • Early direct deposit: Some financial service platforms offer the feature to have a portion of your paycheck deposited a few days early without any fees or interest. You typically have to set up a direct deposit with a minimum monthly amount to qualify. The sum is usually fairly small, and depending on the platform and your eligibility, is typically capped at $150 or $200. Once payday rolls around, the advance you received is taken out of your paycheck. 
  • Fee-free cash advance: Similar to early direct deposit, a handful of money apps and online financial platforms offer the option to receive a small cash advance. The advance is typically capped at a lower amount, but it's fee-free and no interest is charged. 
  • Asking friends and family: If you have a good friend or trusted family member who can afford to let you borrow some money, it might be worth asking them if they are open to offering you a small loan. Just tread carefully. Be sure to spell out the loan terms and expectations of repayment before you accept the money, as otherwise you could risk damaging a relationship.


What's the difference between a cash advance and a payday loan?

Both a cash advance and payday loan are short-term, quick solutions to gaps in cash flow. The dollar amounts tend to be on the small side. Both are known to have high interest rates and fees.

The biggest difference between a cash advance and a payday loan is that you'll need to go through an online payday lender or set foot inside a payday lender location to get a payday loan. While the interest rate of a cash advance is higher than your standard credit card APR, the interest rate on a payday loan is staggeringly high -- we're talking triple digits. It can be 400% or higher. You're also required to pay back that money quickly, usually within two weeks.

Another difference between the two is that while the rates and terms of a cash advance are dictated by the credit card issuer, there may be per-state rules regarding the maximum payday loan amounts, fees and costs.

Do cash advances hurt your credit?

Cash advances can hurt your credit if you don't keep up with the minimum payments. Just as late payments on credit card purchases can ding your credit, so can falling behind on your cash advance payments.

Cash advances also increase your credit usage, or what's known as your credit utilization ratio. This is how much of your limit you've used against your credit limit on all your cards. Generally, you should aim to keep the max on your credit usage to 30% and a cash advance may raise this ratio, potentially lowering your credit score.

What are the interest rates on cash advances?

The average APR on cash advances is 24.80%. Some cards offer a single APR on cash advances, while others offer a range depending on your creditworthiness.