What taking cash out of a credit card actually means

Taking cash out of a credit card is called a cash advance. You go to an ATM, a bank teller, or a convenience store and withdraw money using your credit card, just as you would with a debit card. The money appears in your account immediately. But here is the catch: the credit card company charges you fees and interest that are usually much higher than what you pay on regular purchases.

A cash advance is not the same as using a credit card to buy something. When you buy groceries or pay a bill with your card, you get a grace period — usually 21 to 25 days — before interest starts. With a cash advance, interest starts accruing the moment you withdraw the money. There is no grace period.

Most people should avoid cash advances unless they are in a genuine emergency with no other option. The cost adds up fast, and the debt becomes harder to pay off because interest compounds daily.

Key Takeaways

  • Cash advances charge interest immediately with no grace period, and the interest rate is typically 3 to 5 percentage points higher than your purchase rate.
  • You will pay an upfront fee of 3 to 5 percent of the amount withdrawn, charged by your credit card company on top of interest.
  • The ATM or bank may charge an additional fee of $2 to $5 for processing the transaction.
  • Cash advances count toward your credit limit, so withdrawing $500 reduces the credit available for purchases by $500.
  • If you must take a cash advance, withdraw only what you need and pay it back as quickly as possible to minimize interest charges.

How the fees and interest work

When you take a cash advance, you face three separate costs. First, your credit card company charges a cash advance fee, usually 3 to 5 percent of the amount you withdraw. If you take out $500, you might pay $15 to $25 just for the withdrawal. This fee is added to your balance immediately.

Second, the ATM or bank you use may charge its own fee, typically $2 to $5. If you use an out-of-network ATM (one that does not belong to your card issuer), the fee is often higher.

Third, and most important, you pay cash advance interest starting the day you withdraw the money. This rate is almost always higher than your purchase APR — the rate you pay on regular credit card purchases. While a purchase might carry an APR of 18 percent, a cash advance on the same card might be 24 or 25 percent. The difference varies by card and by issuer, so check your card's terms before you withdraw.

Interest compounds daily, meaning you pay interest on the interest. If you withdraw $500 at 24 percent APR and pay nothing for a month, you will owe roughly $510 in interest alone. The longer the money sits, the more you owe.

Where you can take a cash advance

You have several options for withdrawing cash with a credit card. The most common is an ATM — you insert your card, enter your PIN, and withdraw money just as you would from a bank account. Most ATMs accept credit cards, though some do not.

You can also visit a bank branch and ask a teller for a cash advance. This is often free of the ATM operator fee, though your credit card company's fee still applies. Some banks will only process a cash advance if you have an account with them.

A convenience store or grocery store may offer cash back when you make a purchase, but this is different from a cash advance — it is a debit transaction if you use a debit card, or a purchase if you use a credit card. If you use a credit card for cash back, it is treated as a purchase, not a cash advance, so you get the grace period and the lower interest rate. This is a better option than a true cash advance if you need small amounts of cash.

Some credit card companies let you request a cash advance online or by phone and have the money deposited into your bank account. This avoids ATM fees but still charges the cash advance fee and interest.

Your cash advance limit versus your credit limit

Your credit card has a credit limit — the total amount you can borrow. Many cards also have a separate cash advance limit, which is usually lower. For example, your credit limit might be $5,000, but your cash advance limit might be only $1,500.

When you take a cash advance, it counts against both limits. If you withdraw $500, your available credit drops by $500. If your cash advance limit is $1,500 and you have already withdrawn $1,200, you can only withdraw $300 more, even if your overall credit limit is much higher.

You can contact your credit card company to ask what your cash advance limit is. Some companies let you request a higher limit, though this is not may provide. Others let you lower your cash advance limit if you want to reduce the temptation to use it.

How a cash advance affects your credit score

Taking a cash advance does not directly hurt your credit score the way a missed payment does. However, it can harm your score indirectly in two ways.

First, a cash advance increases your credit utilization ratio — the percentage of your available credit that you are using. If your credit limit is $5,000 and you take a $1,000 cash advance, your utilization jumps to 20 percent. Credit scoring models penalize high utilization, so your score may drop a few points. The effect is temporary and reverses once you pay down the balance.

Second, if the cash advance leads to a higher balance that you cannot pay off quickly, you may miss a payment or carry the debt for months. Missed payments and long-term high balances both damage your score significantly.

When a cash advance might be necessary

Cash advances are expensive, but there are rare situations where they make sense. If you face a genuine emergency — a car repair you need today, a medical bill, or an urgent travel cost — and you have no other way to pay, a cash advance is better than missing a critical payment or going without necessary services.

Before you take a cash advance, ask yourself: Is there another way to get this money? Can you borrow from family or friends? Can you use a personal loan, which usually has a lower rate? Can you wait a few days to use a different payment method? If the answer to all of these is no, then a cash advance may be your only option.

Even then, treat it as a short-term solution. Make a plan to pay it back within one or two months, before interest compounds too much. Every dollar you pay toward the cash advance balance reduces the interest you owe.

How to pay back a cash advance

When you make a payment on your credit card, the payment goes toward your lowest-interest debt first. This means if you have both purchases (at 18 percent APR) and a cash advance (at 24 percent APR), your payment covers the purchase balance before it touches the cash advance. This is bad for you, because the cash advance keeps accruing expensive interest.

Some credit card companies let you specify which balance your payment should cover. Call your issuer and ask if you can direct your payment toward the cash advance. If they allow it, do this every time you pay until the cash advance is gone.

If your issuer does not allow directed payments, pay more than the minimum. The extra money will eventually reach the cash advance balance. The faster you pay it off, the less interest you owe.

Alternatives to a cash advance

Before you withdraw cash with your credit card, consider these options:

  • Cash back at a store: If you need a small amount of cash, ask for cash back when you buy something at a grocery store or gas station. This is treated as a purchase, not a cash advance, so you get the lower interest rate and the grace period.
  • Personal loan: If you need a larger amount, a personal loan from a bank or credit union usually has a lower interest rate than a cash advance. The application takes a few days, but the savings are worth it if you have time.
  • Payday loan: These are expensive and should be a last resort, but they are sometimes cheaper than a cash advance if you can pay them back within two weeks. Be cautious — payday loans can trap you in a cycle of debt.
  • Borrow from family or friends: If possible, this is the cheapest option. There is no interest, and you avoid fees entirely.
  • Negotiate with the creditor: If you owe money to a hospital, utility company, or other business, call and explain your situation. Many will set up a payment plan or delay collection to give you time to find the money.

Frequently Asked Questions

Can I use a credit card to withdraw cash from an ATM without a PIN?

No. You need a PIN to withdraw cash at an ATM, just as you do with a debit card. If you do not have a PIN for your credit card, contact your issuer to set one up. This usually takes a few days. Some banks let you set a temporary PIN online or by phone.

Is there a limit to how much cash I can withdraw at once?

Yes. Your cash advance limit (set by your card issuer) and the ATM's daily withdrawal limit both apply. Most ATMs allow $300 to $500 per transaction and $500 to $1,000 per day, though this varies. Your card issuer's limit may be lower. Call your issuer to find out your specific cash advance limit.

What happens if I cannot pay back the cash advance?

The balance stays on your credit card and accrues interest every day. If you miss the minimum payment, your issuer will charge a late fee and report the missed payment to credit bureaus, damaging your credit score. If the debt goes unpaid for months, your issuer may close the account or send the debt to a collection agency. Contact your issuer immediately if you think you will struggle to pay — they may offer a hardship plan or lower interest rate.

Does taking a cash advance hurt my credit score right away?

Not immediately. The withdrawal itself does not appear on your credit report. However, it increases your credit utilization ratio, which may cause a small, temporary drop in your score. The real damage comes if you carry the balance for months or miss a payment.

Can I take a cash advance from a credit card I just opened?

Usually yes, but some issuers restrict cash advances for new cardholders. Check your card's terms or call the issuer to confirm. Even if you can take a cash advance, the fees and interest make it expensive, so avoid it if possible.