A cash advance is when you borrow money directly from your credit card's cash balance, not from a store or merchant
When you use your credit card to buy something, you are borrowing from the card issuer to pay the merchant. A cash advance is different: you are borrowing cash directly from the card issuer, usually through an ATM, bank teller, or money transfer service. The card issuer gives you the money in hand, and you owe it back just like a purchase — except the terms are much worse.
Most people take cash advances because they need cash right now and do not have it in their bank account. A few use them to move money around between accounts. But the cost of a cash advance is so high that it should almost never be your first choice. Understanding how they work and what they cost will help you see why.
Key Takeaways
- A cash advance charges a separate fee (usually 3 to 5 percent of the amount) on top of interest that starts accruing immediately, with no grace period like purchases have.
- The interest rate on a cash advance is typically higher than your purchase rate and is calculated daily from the moment you take the money out.
- You can take a cash advance at an ATM using your PIN, at a bank teller, or through a money transfer service, but each method has its own fee structure.
- The money you pay toward your credit card bill goes to purchases first, then to cash advances, so cash advance debt can sit and grow interest for months.
How much a cash advance actually costs you
A cash advance hits you with two separate charges: a cash advance fee and a higher interest rate. The fee is charged upfront and is usually between 3 and 5 percent of the amount you withdraw. So if you take out $500, you might pay $15 to $25 just to get the money. That fee is added to your balance immediately.
The interest rate on cash advances is almost always higher than your regular purchase rate. While a purchase might carry an APR of 18 percent, a cash advance might be 25 percent or higher. Unlike purchases, which have a grace period (usually 21 to 25 days before interest starts), interest on a cash advance starts accruing the day you take it out. There is no grace period. If you take out $500 at 25 percent APR, you are paying roughly $3.42 per day in interest alone, before you pay down the principal.
The math adds up fast. A $500 cash advance with a $20 fee and 25 percent APR costs you $20 upfront plus about $103 in interest if you pay it back in one month. That is $123 in fees and interest on a $500 loan — a 24.6 percent cost for one month of borrowing.
Where you can get a cash advance and what each option costs
You have several ways to take a cash advance, and the fees vary slightly by method. An ATM withdrawal using your credit card and PIN is the most common. You walk up to any ATM, insert your card, enter your PIN, and withdraw cash. The ATM may charge its own fee (often $2 to $5), and your card issuer charges the cash advance fee on top of that. Some card issuers set a daily limit on how much you can withdraw — often $500 to $1,000 — so you may not be able to get all the cash you need in one transaction.
A bank teller withdrawal works the same way but happens at a physical bank branch. You bring your credit card and ID, ask for a cash advance, and the teller processes it. There is usually no ATM fee, but the card issuer's cash advance fee still applies. This method can be slower if the bank is busy, but it may allow you to withdraw larger amounts.
Money transfer services like Western Union or MoneyGram let you take a cash advance and have it sent to someone else or picked up at a different location. These services charge their own fees on top of the card issuer's cash advance fee, making them the most expensive option. They are rarely worth using unless you have a specific reason to move money to another person or location.
Why your credit card bill pays purchases before cash advances
Here is a trap that catches many people: when you make a payment to your credit card, the payment goes to your purchases first, then to your cash advances. This is called the payment hierarchy, and it is set by law to protect you from the highest interest charges — but it can still work against you.
Say you have a $1,000 purchase at 18 percent APR and a $500 cash advance at 25 percent APR. You make a $300 payment. All $300 goes to the purchase. Your cash advance sits there, untouched, accruing interest at 25 percent every single day. You have to pay off the entire purchase balance before any of your payment touches the cash advance. If you carry both balances for several months, the cash advance interest compounds while you are paying down the purchase.
This is why cash advances are so dangerous: they are designed to sit on your balance and grow. If you take a cash advance, you should plan to pay it off as quickly as possible, separate from your regular purchases.
Cash advances and your credit score
A cash advance does not hurt your credit score in the moment you take it. However, it increases your credit utilization ratio — the percentage of your available credit you are using. If your card has a $5,000 limit and you take a $500 cash advance, your utilization jumps to 10 percent (or higher if you already had a purchase balance). High utilization can lower your credit score by 10 to 50 points, depending on how much you are using.
The damage is temporary: once you pay off the cash advance, your utilization drops and your score recovers. But while the cash advance is on your balance, it is working against your score. This is another reason to pay it off quickly.
When a cash advance might make sense (and when it definitely does not)
A cash advance almost never makes financial sense. The fees and interest are so high that you will almost always find a cheaper way to get cash. Before you take a cash advance, ask yourself these questions:
Do you have an emergency fund or savings account? Use that first. Even if it means dipping into money you wanted to keep, it costs you nothing. Can you borrow from a friend or family member? A personal loan with no interest is always cheaper than a cash advance. Can you wait a few days for a paycheck or other income? Waiting is free. Does your employer offer a paycheck advance? Many do, and the cost is much lower than a credit card cash advance.
The only scenario where a cash advance might make sense is if you have an immediate, unavoidable need for cash and no other option exists — and even then, you should plan to pay it back within days, not weeks. If you are regularly taking cash advances, that is a sign that your income does not cover your expenses, and borrowing more money will only make the problem worse.
How to avoid needing a cash advance
The best way to handle cash advances is to never take one. This means building a small emergency fund — even $500 to $1,000 — so you have cash on hand when something unexpected happens. It also means using your credit card for purchases you can pay off in full each month, not as a way to spend money you do not have.
If you find yourself regularly needing cash advances, talk to a credit counselor or financial coach. They can help you look at your income and expenses and find ways to close the gap. Many nonprofits offer free counseling, and it can be the difference between getting out of debt and sinking deeper in.
Frequently Asked Questions
Can I take a cash advance if I have not used my credit card yet?
Yes. You can take a cash advance as soon as your card is activated, even if you have never made a purchase. The cash advance is part of your available credit, just like purchases are. However, you should still avoid it because of the high fees and interest.
What is the difference between a cash advance and a balance transfer?
A cash advance gives you cash in hand and charges high fees and interest immediately. A balance transfer moves debt from one card to another and often has a lower introductory rate for a set period. Balance transfers are cheaper if you are moving existing debt, but they do not give you cash.
Will taking a cash advance hurt my credit score?
Not directly, but it will increase your credit utilization, which can lower your score by 10 to 50 points while the balance is active. Your score will recover once you pay it off. Missing payments on a cash advance will hurt your score much more.
Can I take a cash advance on a debit card?
No. Debit cards draw money directly from your bank account, so there is nothing to advance. You can withdraw cash from an ATM with a debit card, but that is not a cash advance — you are just accessing your own money.
What happens if I cannot pay back a cash advance?
The balance stays on your credit card and continues to accrue interest at the high cash advance rate. If you miss payments, your credit score will drop, and the card issuer may increase your interest rate or close your account. You should contact your card issuer immediately if you cannot pay to discuss options.