What is a credit card cash advance?
Many credit cards allow you to withdraw money from your credit card account. This is known as a cash advance.
Key points:
- A cash advance is when you withdraw money from your credit card account
- Cash advances typically attract interest from the date of the transaction until you pay off the balance in full
- You can be charged interest on any unpaid interest that has been added to your balance, as well as any fees and charges
Although this may sound like a quick and easy way to access funds, cash advances can get expensive. Here’s how much it can cost you.
What is a cash advance?
A cash advance is when you withdraw money from your credit card account. For example, using your credit card to take out cash at an ATM or bank branch. When you make a cash advance, you are accessing money using a line of credit.
There are a range of transactions that are typically considered to be cash advances, including:
- withdrawing money from an ATM, bank branch or store at a point of sale
- transferring money from your credit card account to your transaction account
- gambling or gaming transactions, including buying a lotto ticket
- buying travellers cheques, money transfers or wire transfers
- buying a prepaid card or gift card
- buying cryptocurrency
- paying certain kinds of bills
Each provider will have its own rules around this, so it’s important to read the terms and conditions to confirm what types of transactions your provider considers to be cash advances.
How much does a cash advance cost?
The cost of a cash advance depends on the cash advance interest rate and how much cash you access, plus any cash advance fee. You will be charged interest on a cash advance until you pay it off. Most providers also charge a fee each time you make a cash advance.
Interest charges on cash advances
Cash advances typically attract interest from the date of the transaction until you pay off the cash advance balance in full. This is different to purchases made using your credit card, where you will usually receive an interest-free period (e.g. up to 55 interest-free days).
The interest rate for cash advances is typically higher than the interest rate for purchases. Interest on cash advances is typically charged on a daily basis and will be based on your outstanding cash advance balance. This means you can be charged interest on any unpaid interest that has been added to your balance, as well as any fees and charges.
Cash advance fee
In addition to interest charges, you will also typically be charged a cash advance fee. This is usually a flat fee or a percentage of the cash advance amount – whichever is greater.
The cash advance fee is charged at the time of the transaction and is added to your cash advance balance. This means you’ll be charged interest on it.
In addition to the cash advance fee and interest, you may also be charged an ATM fee if you are withdrawing cash from another institution’s ATM.
How much money can I withdraw from an ATM with a credit card?
It depends on your credit card provider. Providers usually set daily cash limits for cash advance withdrawals from ATMs. For example, a daily limit of $1,000 per credit card. Some ATMs may impose their own cash withdrawal limits.
Is a cash advance bad for your credit?
Credit reports do not include information about cash advances. This means that a cash advance itself will not affect your credit score.
The cost of a cash advance can add up though and if you miss a repayment this can be listed on your credit report and may negatively affect your score.
→ You can check your credit score for free
Can I avoid cash advance fees?
One of the best ways to avoid cash advance fees is to avoid using them altogether. Before making a cash advance, consider whether you could use your debit card instead, or whether you have the option of making the transaction as a credit card purchase with a retailer.
If you have a low income, you may be eligible for a no interest loan of up to $2,000. The loan can be used for essentials like fridges, washing machines and car repairs.
If you can’t avoid making a cash advance, you can minimise the interest paid (and potentially the cash advance fee if it’s calculated as a percentage) by reducing the amount of money you withdraw. You’ll be charged interest from the moment you make the cash advance, so paying the balance back quickly can also help to reduce the overall cost.
Choosing a credit card with a low cash advance rate is another way to minimise interest costs. But it’s important to take more than this rate into account if you are looking to take out a credit card. Other factors such as the annual fee, purchase rate and additional features such as rewards points could also be worth considering.
Canstar compares different types of credit cards based on these factors and more. Find out which credit cards have received a 5-Star Rating.
If you’re looking for ways to help manage your finances, you might want to check out our tips on how to create a budget or try a budgeting app.
If you need help managing your bills and debt, you could also consider talking to a free financial counsellor.
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Cover image source: Gordon Bell/Shutterstock.com
This is an update of an article originally written by Sean Callery
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