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Important things to know before getting a cash advance on your credit card
Everything you need to know about credit card cash advances.
Did you know you can use your credit card for a cash advance? While taking out a cash advance is usually associated with using your credit card at an ATM to withdraw money, other transactions actually incur cash advance fees including buying gift cards, getting foreign currency and gambling.
Convenient? Yes. Expensive? It can be. There are high interest rates attached to cash advances and a cash advance fee that you’ll have to pay, which is typically around 1% of the total transaction cost. Read on for key details on cash advances, what you should consider before using your card, and alternative options.
Compare credit card cash advance rates
Depending on your credit card, a cash advance could include any or all of the following types of transactions:
- ATM withdrawals. Getting cash from an ATM using your credit card.
- Gambling transactions. Whether it’s online or at the casino, gambling purchases can be considered as cash advances. Occasionally, purchasing food and drinks at the casino will also be charged as a cash advance.
- Foreign currency and traveller’s cheques. Since they’re a form of cash, purchasing them with your credit card is considered a cash advance.
- Paying for gift cards or prepaid cards. Buying a gift card or a prepaid card is usually classified as a cash advance. This could also apply when reloading prepaid credit, debit or store cards using your credit card.
- Online transfers. If “credit” from your card is being converted into cash that is going into your bank account, it’s a cash advance.
- Utilities. Using your credit card to pay utility bills could be considered as a cash advance.
- Government charges. If you pay a government fee with a credit card, it could be processed as a cash advance.
Unless it’s absolutely necessary to use your credit card for a cash advance, it’s best to avoid it. Here are the drawbacks:
- Higher rate of interest. Cash advance interest rates are always higher than purchase interest rates.
- Cash advance fees. The cash advance fee is usually 1% of the total transaction cost, or $3.50 to a maximum of $10.
- No interest-free days. There’s no grace period with a cash advance –your transaction will accrue interest from the day it’s made.
- No points. Cash advance transactions are ineligible to earn rewards or travel rewards points.
- ATM fees. If withdrawing from an ATM outside of your banks network, an ATM fee will be charged.
- Foreign currency transaction fees. You could be charged for currency conversion if you use your credit card to get cash out at an overseas ATM, adding to the overall cost of the cash advance.
On the plus side:
- Credit card payment allocation. Credit card repayments are made to the debt that has the highest rate of interest first, which is usually a cash advance transaction.
- Having cash in hand. If you don’t have access to cash any other way, this could be a viable solution.
Let’s say you’re at a festival and want to use your credit card to get cash out. Your card applies the following fees and charges:
- ATM withdrawal fee: $3
- Cash advance fee: The greater of $10 or 1% of the total transaction cost.
- Cash advance interest rate: 21.99% APR
If you withdrew $500 on the first day of the festival, your initial costs would be:
- ATM withdrawal fee: $3
- Cash advance fee: $10
- Total: $513
This would start accruing interest at the rate of 21.99% APR from the day you made the withdrawal.
- Payday loans. Consider a payday loan, also known as a short-term cash loan. While most lenders have a fast turnaround time, you’ll be subject to high interest rates.
- Personal loan. A personal loan is usually more affordable than a credit card cash advance or payday loan. Getting approved can take no longer than a few minutes, but it usually takes a few days to receive the funds. If you can wait and are approved for a personal loan, funds will be deposited directly into your bank account and you’ll skip the cash advance fees.
- Debit card. The most affordable option is to use a debit card, as they can offer fee-free withdrawals when you use the bank’s associated ATM network.
- Low cash advance rate credit cards. There are some credit cards out there that charge a lower interest rate on cash advances. Keep in mind you’ll still face a cash advance fee on top of the low interest rate.
If you’re travelling, you could also consider a prepaid travel money card to avoid foreign currency conversion fees and other ATM charges.
With high interest rates and fees, credit card cash advances are almost always an expensive option. If you really need to use a credit card for cash withdrawals or other cash advance transactions, consider applying for a low cash advance rate credit card or consider other options so that you can keep your costs to a minimum.
If you know you will need some extra cash in the future, plan ahead and apply for an affordable personal loan. While it can take a little longer to apply for than other types of credit, the interest rates are generally lower than those of both credit cards and payday loans.Back to top
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