What Is a Cash Advance? How Do They Work?

People often take a cash advance against their credit card’s available credit limit, but there are other options available. Borrowers frequently take out cash advances in an emergency. However, the high interest rates of cash advances may lead to more financial stress in the long run.

Traditional cash advances come with high fees and interest rates that kick in as soon as you withdraw money. 

How to get a cash advance on a credit card

There are several ways to get cash advances from your credit card:

• At an ATM: You can usually go to an ATM and withdraw money like you would with a debit card. The only difference is that the money isn’t yours, so you have to pay it back with interest.
• Online: Log into your credit card account online and submit a request.

The exact cost of a cash advance depends on many factors, including the:

• Cash advance fee
• Cash advance APR
• How long it takes you to pay off the balance
• Whether you pay an out-of-network ATM fee

For example, say you took out a cash advance of $1,000 with the following terms:

• Cash advance fee of 3%: $30
• Cash advance APR of 29.99%: $89.27 in interest
• Time to pay off balance: 6 months
• Monthly payment: $181.54
• ATM fee: $0

If you paid the cash advance balance off in six months based off of those numbers, you would pay $119.27 in interest and fees.

Cash advances: pros and cons

There are some benefits to taking out a cash advance – especially if you’re in a pinch and don’t have any other options. However, there are also drawbacks. Here’s what you need to know about cash advances before you take one out.

Cash advances aren’t a perfect solution. You shouldn’t take them out unless you really need to. 

All cash advances are fairly similar – you borrow money and pay fees and interest in return. The primary differences between the types of cash advances are how you get the money and how much you’ll have to pay for it.

ATM cash advance

An ATM cash advance is a type of credit card cash advance. When you withdraw money from an ATM, your credit card provider will charge you a one-time cash advance fee. The amount you take out will start to accrue interest the same day and will appear on your bill at the end of the month. 

• High approval odds: You should be able to take out a cash advance unless you max out your card.
• How it works: Put your credit card in the ATM, enter your PIN, select “Cash Advance” or “Withdraw Cash,” and choose the amount you want to take out. 
• Typical interest rate: ATM cash advances usually range from 17.99% to 29.99% APR.¹
• Typical transaction fee: ATM cash advance fees are usually $10 or 5% of the total transaction amount.¹

Credit card cash advance

Some credit card companies will send convenience checks that you can use for cash advances. You can deposit these pre-approved checks or give them to someone who can’t accept cash or card payments. 

• High approval odds: You can use your credit card to take out a cash advance if you have enough credit. 
• How it works: Contact your credit card company to request a convenience check. The check(s) will arrive in the mail. You can fill it out for the amount you need and deposit the check at your bank. 
• Typical interest rate: Most credit card cash advances are between 17.99% and 29.99% APR.²
• Typical transaction fee: The transaction fee for credit card cash advances is usually 3% to 5% of the amount you withdraw or $10.¹

Payday loan

A payday loan, also known as a cash advance loan, is a short-term financing option that can tide you over until your next paycheck. These loans are easy to get since they often don’t require a credit check. However, a major downside is that they come with APRs of up to 400%.⁵

Because of the high rates and potential to get stuck in a debt cycle, it’s best to explore less expensive options first before turning to payday loans. For example, compared to payday loans, personal loans are much cheaper.

Merchant cash advance

If you have a small business, you may qualify for a merchant or business cash advance. For example, some lenders offer merchant cash advances which allow you to borrow a lump sum in exchange for a percentage of your business’ future daily debit or credit card sales, plus fees.

A benefit of merchant cash advances is that it’s possible to get one even if you have poor credit. Plus, if you qualify, you can receive funds as early as the next day. But this option generally comes with high fees.⁶

A cash advance doesn’t directly impact your credit score because lenders don’t automatically report the withdrawal.

However, you might see your credit score drop if you miss payments or take out enough money to throw off your credit utilization ratio. Your credit utilization ratio measures how much of your card’s total credit limit you’re using.

Since cash advances come with risks, you should understand what you’re getting into and explore alternatives before committing. Ask yourself these questions before taking out a cash advance:

1. How much are cash advance fees?

Consider the fees of the advance. Cash advance fees vary by lender and the amount of cash borrowed, but they are usually $10 or 3% to 5% of the total amount borrowed – whichever is greater.

2. Cash advance alternatives

Since cash advances should only be a last resort, consider other options first. Here are some alternative ways to get cash in a pinch:

• Personal loan: In many cases, taking out a personal loan at the bank is more affordable than getting a cash advance because they have better borrowing terms. 
• Balance transfer: If you need to take out an expensive cash advance, you should consider transferring the amount to a credit card with low or no APR so it’ll be easier to pay off. 
• Ask a family member: Asking someone you love for money can be uncomfortable, but it’s better than taking on high-interest debt from a lender. If you do choose to borrow money from someone you know, just be sure to come up with a clear repayment plan and pay it off quickly. 

Be sure to consider all your options if there’s a more affordable way to access the cash you need.

Paying off your cash advance is similar to paying off regular credit card transactions. You can pay your credit card bill in various ways, like making payments online, by phone, or by check.

When you make a payment, your credit card company will apply it to your minimum balance first. Afterward, any payment you make over the minimum will go toward your balance with the highest APR, which is often your cash advance balance.⁷

Receiving cash advances can be a slippery slope into debt. Instead, consider options that help you receive your paycheck potentially earlier. Otherwise, a personal loan might be a less risky alternative.

If you need help figuring out whether that alternative is right for you, read our guide on popular reasons for getting a personal loan.