A cash advance is a short-term loan from your credit card issuer, taken as cash rather than a purchase
When you take a cash advance, you borrow money against your credit card's available credit and receive it as cash — usually from an ATM, bank teller, or convenience store. The money is not a purchase; it is a loan that you repay to your credit card company, and it costs more than a regular purchase because the issuer charges a separate fee and a higher interest rate.
Cash advances are different from using your debit card or getting cash back at a store checkout. Those transactions draw from money you already have. A cash advance creates new debt on your credit card account, separate from your regular purchase balance.
Key Takeaways
- Cash advances charge an upfront fee (usually 3 to 5 percent of the amount) plus a higher interest rate than purchases, often 20 to 30 percent annually.
- Interest on a cash advance starts accruing immediately — there is no grace period like there is for purchases — so the debt grows from day one.
- You can obtain a cash advance at an ATM using your PIN, at a bank teller with your card and ID, or through a convenience store or casino cash advance service.
- Your credit card issuer sets a separate cash advance limit, which may be lower than your overall credit limit and is listed in your card agreement.
- Paying off a cash advance takes priority over purchases when you make a payment, so money goes to the higher-interest debt first.
How the fees and interest work
A cash advance carries two costs: a one-time fee and an ongoing interest rate. The fee is charged when you take the advance and is usually a percentage of the amount — typically 3 to 5 percent, though some cards charge a flat dollar amount instead. A $300 cash advance with a 4 percent fee costs $12 upfront.
The interest rate on a cash advance is separate from your purchase rate and is almost always higher. While a credit card purchase might carry an interest rate of 15 to 20 percent, a cash advance often runs 20 to 30 percent or more. This rate is set by your issuer and is listed in your card agreement under "cash advance APR."
The most important difference: interest on a cash advance begins accruing immediately. Purchases usually have a grace period (often 21 to 25 days) during which no interest is charged if you pay the full balance by the due date. Cash advances have no grace period. Interest starts the day you take the advance, regardless of when you pay it back.
Where and how to get a cash advance
You can obtain a cash advance in several ways. The most common is an ATM: insert your credit card, enter your PIN, and withdraw cash up to your cash advance limit. You will pay a fee to the ATM operator (usually $2 to $5) in addition to your card issuer's cash advance fee.
You can also visit a bank branch with your credit card and photo ID and ask a teller for a cash advance. This method avoids the ATM operator fee but may take longer. Some convenience stores, casinos, and check-cashing services also offer cash advances on credit cards, though these venues typically charge higher fees than banks or ATMs.
Your credit card issuer sets a cash advance limit separate from your overall credit limit. This limit may be much lower — sometimes 10 to 25 percent of your total available credit — and is disclosed in your card agreement or online account. You cannot take a cash advance beyond this limit.
Why cash advances are expensive compared to other borrowing
A cash advance is one of the most expensive ways to borrow money on a credit card. The combination of an upfront fee, a high interest rate, and immediate interest accrual makes the total cost steep. A $500 cash advance with a 4 percent fee and 25 percent annual interest costs $20 upfront and then accrues roughly $10 in interest per month if unpaid.
Compare this to a regular purchase: the same $500 purchase at 18 percent interest costs nothing upfront and accrues no interest during the grace period. If you carry the balance, the monthly interest is lower because the rate is lower.
Other borrowing options — personal loans, payday loans, or lines of credit — may have lower rates or fees depending on your credit and the lender. Before taking a cash advance, check whether another option exists.
How payments are applied when you have both purchases and cash advances
If your credit card account has both a purchase balance and a cash advance balance, your payment is applied to the cash advance first. This is required by federal law. The issuer must direct your payment to the highest-interest debt first, which is almost always the cash advance.
This means if you make a $200 payment and owe $150 in cash advances and $300 in purchases, the full $200 goes to the cash advance, leaving the purchase balance untouched. The purchase balance continues to accrue interest at its (lower) rate. This rule protects you from paying off low-interest debt while high-interest debt grows, but it also means you need to pay more than the minimum to reduce both balances.
When a cash advance might make sense
A cash advance is rarely the best option, but there are narrow situations where it may be the least bad choice. If you need cash urgently and have no other source — no savings, no access to a personal loan, no friends or family who can lend — and you can repay the advance within a few weeks, the total cost may be lower than alternatives like a payday loan or overdraft fee.
For example, a $300 cash advance with a $12 fee and repaid within two weeks might cost $15 to $20 total in interest and fees. A payday loan for $300 often costs $45 to $60 in fees alone. If you have a credit card available and can pay back quickly, the cash advance may be cheaper.
However, if you cannot repay within a few weeks, the interest compounds and the cash advance becomes very expensive. It is not a tool for ongoing cash flow problems.
How a cash advance affects your credit
Taking a cash advance does not directly damage your credit score, but it can indirectly harm it in two ways. First, it increases your overall credit card balance, which raises your credit utilization ratio — the percentage of available credit you are using. A higher utilization ratio can lower your score. Second, if you carry the cash advance balance and miss a payment, that missed payment is reported to credit bureaus and will hurt your score.
The cash advance itself appears on your credit report as part of your credit card account activity, but lenders do not treat it differently from a purchase when they review your report. What matters is whether you pay on time and how much of your available credit you are using.
Frequently Asked Questions
Can I use a cash advance to pay off another credit card?
Yes, you can use the cash to pay another card, but it is usually a bad idea. You are borrowing at 25 to 30 percent interest to pay off debt that might be at 15 to 20 percent. You are also paying an upfront fee and getting no grace period. Balance transfer offers (which move debt from one card to another at a lower rate) are a better option if your issuer offers them.
What is the difference between a cash advance and a balance transfer?
A balance transfer moves debt from one card to another; a cash advance borrows new money as cash. Balance transfers often have a lower fee and interest rate, especially during promotional periods. Cash advances always charge a higher rate and an upfront fee. If you need to move existing debt, a balance transfer is usually cheaper.
Does taking a cash advance hurt my credit score?
Not immediately, but it can lower your score indirectly by increasing your credit utilization ratio. If you carry the balance and miss a payment, the missed payment will hurt your score. Paying the advance on time and in full has no negative effect on your score.
Can I get a cash advance if I have a low credit limit?
Your cash advance limit is set by your issuer and is usually lower than your overall credit limit. You can take an advance up to that limit regardless of your overall credit limit. If your cash advance limit is $200, you can take $200 even if your total credit limit is $1,000.
What happens if I cannot pay back a cash advance?
The balance remains on your credit card and continues to accrue interest at the cash advance rate. If you miss payments, the issuer may charge late fees, report the missed payment to credit bureaus, and eventually pursue collection. The debt does not disappear and will affect your credit for years.