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What to Know about Credit Card Cash Advances

June 09, 2021 · 6 minute read

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What to Know about Credit Card Cash Advances

There are a lot of reasons a person might desperately need some fast cash. Unexpected expenses can be an unfortunate fact of life. And they don’t usually wait until payday comes or until there’s an emergency fund large enough to cover them.

A particularly expensive (or unlucky) month might make a credit card cash advance seem appealing.

Can You Get Cash Back from a Credit Card?

Just because you can do something doesn’t always mean you should.

A credit card cash advance is a stopgap for a financial emergency that can come with high costs to a person’s immediate financial situation and, if not paid back quickly, may also affect their credit history in the long term.

A cash advance is certainly easy, but there are better and more affordable options for most financial needs.

A credit card cash advance is used to get actual cash against a credit card account’s cash limit, which might be different from the credit limit. It’s essentially a loan from the credit card issuer.

Getting a credit card cash advance can be as easy as following the cash advance instructions on an ATM: Insert the credit card, enter the card’s PIN, and choose an amount to withdraw.

If you don’t know the card’s PIN, a cash advance can be completed by going into a bank or credit union with the credit card and a government-issued photo identification.

A cash advance check directly from the credit card company—sometimes included with mailed monthly billing statements—can also be used to get a cash advance.

Why Do People Use Cash Advances?

The bottom line: convenience and speed. ATMs are plentiful in most towns and it takes just a few minutes to complete the process of getting a cash advance at an ATM.

Some people may assume they don’t have enough time to access other kinds of credit. This isn’t always true, however. For instance, funds obtained through an unsecured personal loan are sometimes available in just a few days after approval of the loan.

People who may not have learned financial skills as they entered adulthood may not be aware of all the options they might have. A 2020 financial literacy survey commissioned by SoFi found that 68% of respondents “want to learn more about their finances, but don’t know where to go.”

SoFi is committed to increasing financial literacy that will help people avoid high-cost debt. Test your own financial literacy with a quick quiz that SoFi offers.

Cost of Withdrawing Cash from a Credit Card

A cash advance is an expensive way to borrow money. To put it in perspective, they’re just a step up from payday loans , (which typically have much higher interest rates than credit card cash advances, extra fees, and short repayment terms.

The cost of getting a cash advance from a credit card can be quite high, because they are treated differently than regular credit card purchases.

Cash Advance Fee

It’s typical for credit cards to have a fee specifically for cash advances. This fee can be anywhere from 3% to 5% of the total amount of the cash advance, or $10, whichever is higher. This fee is added to the account balance immediately—there is no grace period.

Higher APR

The average APR, or annual percentage rate, a credit card issuer typically charges for a cash advance is quite a bit higher than normal purchase charges.

According to the 2020 CreditCards.com Annual Credit Card Fee Survey , the average cash advance APR is nearly 25%. This is almost 9% higher than the average credit card APR (on regular purchases) of 16.15%, as of May 2021.

Unlike interest charged on regular purchases, there is no grace period for the interest to start accruing on a cash advance. It starts accruing immediately and increases the account balance daily.

ATM Fee

Getting a credit card cash advance from an ATM typically means incurring an extra fee charged by the ATM owner. Average ATM fees are currently more than $4.50 per transaction, on average. This amount is also added to the credit card account balance and starts accruing interest immediately.

Payment Allocation Rules

The cash advance can be paid off first, and then the interest rate will revert to the lower rate charged on regular purchases, right? No, that’s not how it works. While federal law dictates that any amount more than the minimum payment made must go toward the highest interest rate debt, the minimum payment amount is typically applied at the credit card issuer’s discretion.

A Hypothetical Scenario

A person is carrying a credit card balance of $1,000 with an APR of 20%. They take out a $1,000 cash advance with a 25% APR. When they receive the billing statement, they pay $1,000 toward their credit card balance.

The minimum payment due amount of $35 is applied to the regular purchases that are accruing interest at a rate of 20%. The remainder, $965, is applied to the cash advance balance that’s getting charged a 25% interest rate.

In order to completely get rid of that 25% APR, they would have to pay the full $2,000 balance.

The cash advance will only be paid off when the entire credit card balance is paid in full, which means they could be setting themselves up with higher interest charges for a long time to come.

The $35 that did not get applied to the cash advance balance will continue to accrue interest, so to make sure the cash advance gets paid off in full, it’s important to think short-term when it comes to making another payment.

Waiting until the next monthly statement is available will just increase the amount due because every day the $1000 cash advance accrues interest, costing more money. The faster the balance is paid off, the less interest will accrue.

Personal Loans vs. Cash Advances

So what are the alternatives to a cash advance? Ask friends or family for a loan? Start a side gig?

While those options are certainly acceptable, an unsecured personal loan might also be an option for some people.

An application for a personal loan online can typically be completed in minutes and, if approved, the borrower may possibly get the funds within a couple of days. Personal loans can be used for a variety of reasons.

Some common uses for personal loan funds are debt consolidation, wedding expenses, unexpected medical expenses, and moving expenses, to name a few. It’s even possible to use a personal loan to pay off that credit card cash advance, which may cost you a lot less in the long run.

Personal loans are likely to offer a more manageable interest rate on the money borrowed than the typical interest rate on a credit card cash advance.

Of course, the personal loan’s interest rate will depend on the borrower’s creditworthiness, but it’s likely to be lower than the one tied to a credit card cash advance.

And with a single personal loan, there is only one interest rate to keep track of, as opposed to juggling two high interest rates: one for the cash advance and one for regular purchases charged to the credit card.

Credit card debt is revolving debt, which means that the borrower’s credit limit can be used, repaid, then used again, as long as the borrower is in good standing with the lender.

In contrast, a personal loan is installment debt, and has fixed payments and a fixed end date. Unlike the revolving debt of a credit card, the funds from a personal loan can only be used once, and then they have to be repaid.

One potential benefit of choosing a personal loan over a credit card cash advance is that responsibly managing a personal loan might positively impact the borrower’s credit score.

One factor that goes into calculating a FICO® Score is the percentage of available credit being used, the credit utilization ratio, and it accounts for 30% of a person’s total score.

In the hypothetical scenario above, if the borrower had a $3,000 credit limit on their credit card, by using $2,000 of their total available credit, their credit utilization rate would be a whopping 66% (if that one credit card was the only account appearing on their credit report).

It’s fairly typical that credit card users continue to make charges on their accounts, which is likely to keep their credit utilization ratio high.

Installment debt, such as a personal loan, is looked at in a slightly different way in credit score calculations. Making regular payments on an installment loan may carry slightly greater weight than might someone’s credit utilization rate in calculating their credit score. Thus, making regular payments on a personal loan is likely to demonstrate responsible borrowing as the balance is paid down.

The Takeaway

Life can certainly toss in some unexpected financial challenges now and then. But by stepping back and considering our options instead of merely reacting to those challenges, we can be better equipped to make smart financial decisions.

Using a credit card interest calculator can be enlightening when figuring out how much those purchases or cash advances will really cost with interest applied and how much time it might take to pay them off.

SoFi personal loans may be an option for the funding you need for unexpected expenses, without the financial strain of a high-interest credit card cash advance.

Learn more in just two minutes.


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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
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Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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