Have you ever found yourself in need of some emergency cash without any money in the bank? The fact is, more than half of Americans are unable to cover an emergency expense of $1,000 or more using savings.
You might have thought about your credit card sitting in your wallet and wondered if it could be of any help. But if you need to pay in cash and can’t use credit, things get a little more complicated.
Most credit cards allow users to take out cash against their credit limit, known as a cash advance. However, doing so is almost always accompanied by steep fees and interest charges — meaning it should only be used as a last resort. Before you swipe your credit card at an ATM or visit your bank and ask to make a withdrawal, consider the long-term costs of doing so and if it is absolutely necessary.
What is a cash advance?
A cash advance is when you make a cash withdrawal using your credit card. Unlike debit cards, credit cards aren’t tied to available capital in a bank account. Instead, credit cards offer users a line of credit that must then be paid back each month. Failure to pay results in fees and steep interest charges. When you withdraw cash using your credit card, the amount is deducted from your available credit and additional fees often apply.
A cash advance, in particular, is an expensive way to borrow money. Typically, when you make purchases on a credit card, you are given a grace period of around 30 days before you owe any interest. That means as long as you pay your bill on time and in full, you won’t have to pay back any more than you spent. But with a cash advance, interest almost always begins accruing immediately.
With a standard rewards card, for any purchases made on the card, you have until the due date to make your payment in full. If you do so, you will not owe any interest on the purchase. If you do carry your balance over to the following month, you’ll pay a variable APR typically ranging from the low teens to as much as 30% or more, depending on your creditworthiness. With a cash advance however, you’ll begin accruing interest immediately, with no grace period to pay it back in full.
In addition, most credit cards will charge cardholders a flat fee when they take out a cash advance. Most cards charge a fee of $3 or 3% of the total amount, whichever is higher. But some cards might charge up to 5% of the amount.
As you can see, even an emergency withdrawal of $1,000 from your credit limit can cost you a lot of money long term.
All said, when you find yourself in a pinch, sometimes you have no choice but to swallow the fees. Just be sure you know exactly what you are getting yourself into in terms of repayment before you make that decision.
How do I get a cash advance?
The easiest way to get a cash advance is to bring your credit card to any ATM. However, you may also receive a cash advance by visiting your bank in person or contacting them over the phone.
Depending on your bank’s terms and conditions, some credit card transactions might also count as a cash advance—namely transferring money via a service like PayPal or Venmo using your credit card. Capital One, for instance, considers the following transactions to be a cash advance:
- Peer-to-peer money transfers through apps, such as PayPal, Venmo and MoneyGram.
- Bill payment, including auto loans, through a third-party bill pay service.
- Wire transfers.
- Traveler’s checks.
- Money orders.
- Foreign currency exchanges.
- Lottery tickets.
- Gaming chips and other wagers.
How to get a cash advance from a credit card
Keep in mind that if you want to use your credit card to get a cash advance, you might need a PIN in order to do so. Most U.S. credit cards don’t automatically come with a PIN for transactions, so contact your bank online or via phone to request one if needed.
Depending on your credit card, your cash advance fee is either deducted from the amount you try to withdraw or added to your next card statement. You should be prepared to pay that amount immediately.
Pros and cons of a cash advance
Unless you need cash quickly for an emergency and have no other options at your disposal, there are very few pros to a cash advance. It’s expensive and laden with fees and it might take some legwork contacting your bank to get your hands on the money.
On the other hand, there are quite a few cons to a cash advance, including the following:
- You’ll be subject to a cash advance fee, typically between 3% and 5% of the amount withdrawn.
- Your APR is often higher than the one assigned for purchases.
- There isn’t usually a grace period on cash advances, meaning interest begins accruing immediately from withdrawal.
- Cash is withdrawn against your credit limit, which can negatively impact your credit utilization ratio and therefore your credit score.
- You might need to contact your bank to receive a PIN in order to make a withdrawal from an ATM.
Other alternatives to a cash advance
If you find yourself in need of money quickly, there are some alternatives to a cash advance. Ideally, you could draw from an emergency savings account or borrow from a friend to avoid interest charges. But that is not an option for everyone.
Another emergency loan option is a payday loan, which is typically a short-term loan for a small amount borrowed against your paycheck. But these loans are often even more expensive than a cash advance and the Consumer Financial Protection Bureau (CFPB) warns consumers against the steep costs. Interest rates on payday loans can be equal to almost 400%.
Alternatively, if you have a retirement account such as a 401(k) or IRA, you could make a withdrawal from that. Just keep in mind that there are almost always tax penalties for doing so. You can calculate the estimated cost using tools from banks such as Wells Fargo.
Finally, you could consider a personal loan instead. Unlike a cash advance or payday loan, personal loans typically come with a relatively modest interest rate for those who qualify. These loans often require minimum credit scores, collateral or consistent income, so if you don’t meet the requirements, this may not be an option for you.
Frequently asked questions (FAQs)
Yes, you can get a cash advance by using your credit card to make a withdrawal at an ATM. Just ensure that you have set up a PIN, which might require contacting your bank to request one.
Some banks allow you to request a cash advance through your online banking portal, while others require that you contact them via phone or in person. Consult your account to see which applies to you.
No. By definition, a cash advance is a withdrawal made using a credit card, as it is cash you pull out against your line of credit. Debit cards pull directly from associated checking accounts, meaning you must have the funds available in the bank to make a withdrawal.
