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What to Know about Credit Card Cash Advances

December 14, 2018 · 5 minute read

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What to Know about Credit Card Cash Advances

There are a lot of reasons you might desperately need some fast cash. Whether a medical bill catches you off guard, or you need to fix a leaky roof in the middle of spring, unexpected expenses are an unfortunate fact of life. And they don’t wait until payday comes or until you’ve built an emergency fund large enough to cover your car breaking down or your dental misadventures.

A particularly expensive (or unlucky) month coupled with not paying close attention to your bank balance might mean you run out of cash a week before your rent is due. That’s when a credit card cash advance may start to seem appealing. To be clear, you don’t need to learn to repair cars or faulty roofs yourself. There are a lot of options when you need cash fast.

Can You Get Cash Back from a Credit Card?

Unfortunately, many people look at their credit cards when they’re in a tight financial spot and wonder, “Can you get cash back from a credit card?” The answer is yes, you can. A credit card cash advance could help you get over your financial road bumps temporarily. But just what are the costs of these easy withdrawals, and are there better (and more affordable) options?

A credit card cash advance is when you use your credit card to get cold hard cash. If your credit card offers cash advances, the usual process is to go to an ATM, enter your card’s PIN number, and choose an amount to withdraw. You can also potentially get a cash advance from a credit union or a bank by going in and requesting one. Finally, you have the option to request a cash advance check from your credit card company directly.

Many credit cards have a limit to how much you can withdraw when using a cash advance—and it may be less than your total credit limit given for purchases. You may want to check your card’s terms to see how much you can take out with a cash advance, if you decide to go that route.

Why Do People Use Cash Advances?

The reason people use cash advances is the same reason there are such things as coffee pods, drive-thrus, and pre-cut carrots: We like convenience and speed. If you need money fast, the standard thinking goes, why spend time researching your options when you can just use your credit card at the ATM around the corner?

If you need money within the next few days for an unexpected situation, many people will assume it’s too short of a window to access other kinds of credit. (And by the way, this isn’t always true! Even a couple days is often enough time to use a different borrowing method.)

Cost of Withdrawing Cash from a Credit Card

If you’re thinking that taking out a cash advance is all dollar bills and fixed teeth, we’ve got bad news. Unfortunately, that’s just not the case. Cash advances are one of the most expensive ways to borrow money. To put it in perspective, they’re just a step up from payday loans (which can come with high interest rates, extra fees, and short repayment terms). The cost of withdrawing money from a credit card can be quite high, because there are all sorts of special credit card fees involved.

The first fee that you’ll likely get hit with is a cash advance fee, which can be anywhere from 2% to 5% of the total amount you’re borrowing or $10—whichever is higher . That fee is typically tacked onto your next credit card statement. It’s a pretty big bite, but that’s just the beginning. If you take that money out from an ATM, you may also have to pay an ATM fee. This can be as much as $6.

One common misconception about cash advances is that the interest rate on a cash advance is the same as the interest rate on credit card debt. No such luck. You’ll likely be charged a higher interest rate on cash advances—sometimes 5% to 10% more. If, for example, you were already paying 20% APR on your card, that brings your cash advance interest to at least a whopping 25% APR.

You would think that you could just pay off the cash advance first and then revert to the lower rate? No such luck again! While your minimum payment typically goes toward your highest interest rate debt (though that’s at your credit company’s discretion), if you pay more than the minimum, the additional money will likely go toward your lower interest debts first.

Let’s look at a hypothetical scenario: Say you’re carrying a credit card balance of $1,000, and it’s charged at a 20% APR. Then you take out a $1,000 cash advance, which is charged at a 25% APR. If you pay off $1,000 on your credit card, it will automatically go toward the money that’s getting charged a 20% interest rate.

In order to get rid of your 25% APR, you’d have to pay off the full $2,000 balance. Your cash advance will only be paid off when you pay off your entire credit card, which means you could be setting yourself up with a higher interest rate for a long time to come.

In addition, most credit cards don’t offer a grace period when it comes to cash advances. That means the credit card company can start charging interest on your cash advance as soon as the ATM spits out those bills.

Personal Loans vs. Cash Advances

So what can you do if you don’t want to use a cash advance? Ask your friends or family for a loan? Start driving for Uber?

Before running to the ATM, you may wish to consider a personal loan instead of a credit card cash advance. You might assume that personal loans always take weeks to get approved and require that you put on a business suit and set up a meeting with an adversarial loan officer. But you would be wrong.

Nowadays, you can apply for a personal loan online in minutes and possibly get funding within a couple of days. You can also use a personal loan for different reasons—including unexpected dental emergencies. Even if you already took out a cash advance, you can still use a personal loan to pay off credit card debt (it may cost you a lot less in the long run).

Personal loans are probably more likely to give you a manageable interest rate on the money you borrow. Your interest rate will depend on your current financial and credit situation, but it may be lower than the one tied to a credit card cash advance.

You may also be able to find a personal loan that has no origination fees or prepayment fees, so you won’t need to worry about being charged an arm and a leg just for the privilege of borrowing money. And with a personal loan, you’re typically dealing with one reasonable interest rate, as opposed to dealing with two high interest rates: one for your cash advance and one for your credit card.

One surprising benefit of using a personal loan is that it could potentially positively impact your credit score (provided you don’t go racking up more credit card debt). Your credit score is partially calculated by the percentage of available credit that you’re using. If you put more money on your credit card, you could go above the 30% ideal utilization range.

And when that happens, your credit score could be negatively impacted. But by taking out a personal loan, you won’t go over the ideal utilization range on your credit card. And your credit score could potentially go up because you have more credit available to you—and more types of credit in your repertoire—which can make you look good to other lenders.

Interested in taking out a SoFi personal loan? SoFi personal loans can get you the funding you need for unexpected expenses, without the financial strain of a high-interest cash advance. Learn more in just two minutes!

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


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