An important and handy feature of a credit card is that it allows you to withdraw cash from ATMs, which is known as a cash advance. While these transactions typically attract a higher interest rate and a cash advance fee, there are a selection of credit cards on the market that charge competitive interest rates for cash advances.
Here, we’ll explain how they work, compare low cash advance rate credit cards and share what else you need to know before choosing and using a credit card for cash advances.
What exactly is a cash advance?
A cash advance is when you use your credit card to access money from an ATM or credit card terminal (as cashback for example). Cash advances can also include “cash equivalent” transactions, such as using your credit card to buy gift cards, foreign currency, travellers cheques or for gambling transactions.
In Canada, typical low cash advance interest rates usually sit between 8.99% to 12.99% (fixed), with some cards offering cash advance rates as low as prime + 0.9% to 6.9%. This means you will be charged the current prime rate as well as a rate of 0.9% to 6.9%, depending on your eligibility. The prime rate is currently 3.95% as of December 2018, but it can fluctuate, meaning your cash advance rate could rise or fall with the prime rate. This would put a prime + 0.9% cash advance rate at 4.85%.
Since these transactions give you access to actual cash, or an equivalent, they typically attract a higher interest rate, as well as a cash advance fee of around 1% or a fee between $3.50 and $10.
Cash advance transactions are not eligible for any interest-free days that your card may offer for standard purchases, which means interest will accrue from the day the transaction is made until it is paid off in full.
What is the difference between cash advances and purchases?
A cash advance refers to using your credit card to access money.
Purchases refer to instances when you use your credit card to pay for products and services.
Standard credit cards charge different purchase interest rates and cash advance interest rates, with cash advance rates typically being higher.
How do low rate cash advance credit cards work?
They’re just like regular credit cards except they offer a competitive interest rate on cash advance transactions. Some of these low rate cards actually charge the same interest rate for both purchases and cash advance transactions.
What are the benefits of low rate cash advance credit cards?
Provide an affordable way to use your credit card for a cash advance transaction.
Can be useful if you need extra funds and can’t use your credit card to make a payment.
Helpful if you need cash immediately and don’t have any in your everyday bank account.
How to compare low rate cash advance credit cards
When comparing credit cards, consider the following factors:
Interest rates. The cash advance interest rate may not be the same as the purchase interest rate, so it’s important to look at both.
Cash advance fee. This fee is charged every time you make a cash advance transaction and is usually a fixed dollar amount or percentage. Most cards in Canada charge 1% of the transaction, or a dollar amount from $3.50 to a maximum of $10.
Annual fee. Weigh up the features of the card and consider whether they will offset the annual fee so that you can choose a card that’s both affordable and beneficial for you.
International transaction fee. Most credit cards charge a fee of 3% for transactions made in a foreign currency — make sure you also consider this fee and how it could impact the overall cost of a cash advance. This fee can be charged if you use your credit card overseas, as well as with an international retailer online.
If you decide to use your credit card to get a cash advance, consider the following:
Budget for repayments. The longer you carry a balance on your credit card, the more interest you will pay. To keep costs to a minimum, make a repayment plan and stick to it or use your savings to pay off the balance.
Make a payment as soon as possible. Every day you carry a balance from a cash advance, interest is added onto it. By making payments before your statement is due, you can reduce the overall cost of a cash advance.
Overseas fees for cash advances. If you use your credit card to get cash out while travelling overseas,you could also have to pay ATM fees, international transaction fees and face currency exchange rates.
Rewards. If your credit card comes linked to a rewards program, any cash advances you make won’t be eligible for rewards like points per dollar spent or cashback.
How do I apply for a low rate cash advance credit card?
Applying for a low rate cash advance card is simple and can be completed online in around 10 to 15 minutes. After comparing a variety of credit cards and choosing one that suits your needs, navigate to the lender’s secure website to apply for the card. Make sure you meet the eligibility requirements for the card before applying.
Eligibility requirements
While it may vary between providers, you will usually need to meet the following eligibility requirements:
Be at least 18 years of age, or the age of majority in your province or territory.
Be a Canadian citizen or a permanent resident with a valid Canadian address.
Be employed and have a steady income.
Meet any minimum income requirements.
Meet any credit score requirements.
Required documents
Have the following documents and details ready to speed up the application process:
Full name, personal contact information including address, email and phone number.
Social Insurance Number (SIN).
Housing status and monthly rent or mortgage payments.
Unlike regular credit card purchases, cash advances give you access to actual money or an equivalent such as gift cards or foreign currency. In this sense, they are similar to more traditional loans, but don’t require you to apply for more credit. This could suggest to a lender that a person is desperate for funds or needs cash to make a questionable purchase. As a result, most credit card providers view cash advances as “higher risk” transactions and apply higher interest rates and fees.
You can continue making minimum monthly payments on your cash advance until you clear the balance completely, but by doing so you would end up paying a lot in interest. Ideally, you should aim to pay the balance off in full as quickly as possible to keep costs to a minimum.
You can consider getting a secured or unsecured personal loan – both tend to charge lower interest rates when compared to credit cards and payday loans. How quickly you get access to funds depends on the loan provider.
Amy Bradney-George is an SEO Writer and Subeditor at Are Media and former acting editor for Finder X and a senior writer for credit cards and Finder Green. She has more than 13 years' experience as a journalist and writer, with bylines in publications including The Equity Magazine, The Sydney Morning Herald, ABC News and produce industry website FreshPlaza. Amy has a Bachelor of Arts in Journalism and Drama from Griffith University, and when she’s not putting (virtual) pen to paper, she spends her time as an actress. See full bio
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