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What Is A Cash Advance and How Does It Work?

Susan Shain • December 16, 2023

Life has a not-so-funny way of throwing you curveballs when you least expect it. Whether the transmission on your car gives out, your insurance company is refusing to pay for medical bills, or you need a little extra money to cover college expenses – you may feel the pressure to find funds fast. 

Taking out a cash advance may feel like your best bet. But before you take this route, let us tell you more about what cash advances are, how they work, where to get them, and available alternatives. 

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What is a cash advance?

A cash advance is a short-term, high-interest loan you can borrow to quickly access money.

Most people take out a cash advance against their credit card’s available credit limit, but there are other options available, which we’ll detail below. Borrowers frequently take out cash advances in an emergency. The high interest rates of cash advances may lead to more financial stress in the long run.

How does a cash advance work?

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

Three important things to consider before taking out a cash advance.

There are several ways to get cash advances:

  • 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. 
  • From your credit card: Log into your account online and submit a request. 

What are the general pros and cons of cash advances?

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 a lot of drawbacks. Here’s what you need to know about cash advances before you take one out. 

ProsCons
  • Easier accessibility: You can usually get money from an ATM and skip the credit checks that a loan lender would run.
  • Faster access to cash: Since you only need an ATM and a credit card to get a cash advance, you can get money quickly and without much hassle.
  • Don’t require collateral: You don’t need to show recent paystubs or place collateral. Instead, you can just borrow against available credit.
  • High interest rates: Cash advances come with  higher interest rates and fees than regular credit card purchases.
  • A negative impact on credit: Cash advances increase your balance and your credit utilization.
  • Withdrawal limits: Most credit card companies only allow you to withdraw a percentage of your card’s total limit, so you might need to explore other ways to get paid instantly.

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

Types of cash advances

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.

An overview of ATM, credit card, and paycheck cash advances.

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.¹
  • Typical transaction fee: The transaction fee for credit card cash advances is usually 3% to 5% of the amount you withdraw or $10.

Is a cash advance right for you?

Since cash advances come with risks, you should understand what you’re getting into and explore alternatives before committing. 

1. How much are cash advance fees?

Cash advance fees vary by lender and the amount of cash borrowed, but they are usually $10 or 2% to 5% of the total amount borrowed – whichever is greater. 

2. Will a cash advance hurt my credit score?

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.¹

3. Would I prefer 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:

Alternative options to consider before taking out a high-interest cash advance.

  • 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.

Set up direct deposit with Chime to get paid up to two days early.*

Need cash to get you through to payday?

Receiving cash advances can be a slippery slope into debt. Instead, consider options that help you receive your paycheck potentially earlier, like Chime’s Get Paid Early feature. Otherwise, a personal loan might be a less riskier alternative. 

FAQs about cash advances

Still have questions about cash advances? Find answers below. 

What is a good cash advance APR?

Traditional cash advances typically range from 17.99% to 29.99% APR. You should aim for a cash advance on the lower end of that range to get the best deal. 

What is the difference between a cash advance and a loan?

Cash advances are short-term, high-cost borrowing options that you can get from a credit card lender. Personal loans are usually more cost-effective, with a lower interest rate than you can get from your bank or credit union

Are cash advances expensive?

Yes. Like payday loans, cash advances have high interest rates that can quickly become difficult for the average person to pay. 

Are there more cost-effective alternatives to cash advances?

Yes, cash advances should be a last resort because several options are better for your financial health. Before taking out a cash advance, consider paying for the stuff you need with a credit card, getting overdraft protection, taking out a personal loan, or opening a new line of credit. 

Better online banking

  • Checking Account with no monthly fees
  • 50,000+ fee-free ATMs~
  • Chime Visa® Debit Card
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Chime® is a financial technology company, not a bank. Banking services are provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC. The Chime Visa® Debit Card and the Chime Credit Builder Visa® Credit Card are issued by The Bancorp Bank, N.A. or Stride Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit and credit cards are accepted. Please see the back of your Card for its issuing bank.

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* Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.

1 Information from Experian’s What Is a Credit Card Cash Advance Fee? as of 11/22/23: https://www.experian.com/blogs/ask-experian/what-is-credit-card-cash-advance-fee/

2 Information from CNBC’s What is a cash advance and how do they work? as of 11/22/23: https://www.cnbc.com/select/what-is-a-cash-advance-and-how-do-they-work/

3 Information from NCLC’s Earned Wage Advances and Other Fintech Payday Loans: Workers Shouldn’t Pay to be Paid as of 11/22/23: https://www.nclc.org/resources/earned-wage-advances-and-other-fintech-payday-loans-workers-shouldnt-pay-to-be-paid/

~ Out-of-network ATM withdrawal and over the counter advance fees may apply.

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