What is cash advance on a credit card & how does it work?
Credit card cash advances let you tap into your credit line to get cash when you need it, but it's important to understand the costs of a cash advance and to know how credit card cash advances work before you take one out.
What is a cash advance?
A cash advance is a loan offered by your credit card issuer. When you take out a cash advance, you're borrowing money against your card's line of credit. You must repay this loan and the amount you transfer cannot exceed the current balance available on your credit card. The amount of the cash advance is then added to your credit card balance.
How does a cash advance work?
The amount of money you transfer or withdraw as a cash advance will appear on your credit card statement and interest will begin accruing right away. Cash advances typically come with a higher APR than regular purchases and you may also incur a cash advance fee.
How to get a cash advance from a credit card
If you have a credit card that allows cash advances, you can access cash in a few different ways.
Cash advances via an ATM
Getting a cash advance from an ATM usually requires your physical card, as well as a personal identification number (PIN) provided by your card issuer. You might also be subject to daily ATM withdrawal limits and fees similar to those imposed on checking accounts.
Cash advances via convenience check
Your credit card issuer may provide you with convenience checks linked to your card account. Like a normal check, convenience checks allow you to submit payments to a particular person or organization, which are charged against your credit account.
In-person cash advances
You might be able to use your card to take out cash advances in person at a branch. Remember to take identification with you, if this is something you can do.
What is the maximum cash advance limit you can withdraw from a credit card?
Cash advances are typically capped at a percentage of your card's credit limit. For example, if your credit limit is $15,000 and the card caps your cash advance limit at 30%, your maximum cash advance will be $4,500.
What are the costs associated with a cash advance?
Cash advance is an expensive way to access cash. Over and above the actual advance, which you will need to repay, cash advances come with the following charges:
- Fees. Cash advance fees can be substantial, where a typical fee is 5% of each cash advance you request. In addition, you are likely to pay several dollars in ATM fees if you take out a cash advance via ATM.
- Cash advance APR. You will typically pay a higher interest rate on advances than what your card charges for purchases. And unlike purchases, which allow a grace period before interest begins to accrue, cash advance interest starts to accrue as soon as the advance is granted.
Does cash advance hurt your credit?
A cash advance that is promptly paid back shouldn't hurt your credit— although cash advances do count towards your credit utilization, or the amount of revolving credit you are using against your credit limits. Credit utilization is a major contributor to your FICO® credit score, making up 30% of the FICO® scoring model.
Cash advances can lower your credit score if you fail to pay back what you owe. Payment history is the single biggest component of the FICO model, representing 35% of a person's FICO® score.
Worrying about how a cash advance could affect your credit score is completely natural, Chase offers Chase Credit Journey® as a simple and free tool to keep track of what your credit score is and the different elements that contribute to it.
How do I pay less for credit card cash advances?
There is no way of paying less for cash advances. Cash advance fees and interest rates are typically higher than a regular charge on your credit card. For this reason you may want to consider using them infrequently and only for emergencies.
Credit card cash advances: Get all the facts
Credit card cash advances can be a lifeline when you need cash, but be sure you understand the full cost of a cash advance before you take one out. Closely read your card issuer's terms and conditions to learn how a credit card cash advance works as well as what it will cost you, and consider whether less-expensive borrowing options might be right for you.
