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What you need to know about cash advance interest rates
A credit card cash advance gives you quick access to money but it often comes at a high cost.
While credit cards are mainly designed to pay for purchases, you can also use them to get cash or a cash equivalent. Known as a cash advance, these transactions generally attract higher rates and fees when compared to regular purchases. So it’s important to consider whether the convenience of using a credit card for cash advances is worth it.
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What is a cash advance?
A cash advance is a type of transaction that allows you to access funds in the form of cash or a “cash equivalent”. For example, using your credit card to withdraw money from an ATM, pay for gift cards or buy foreign currency are all commonly defined as cash advance transactions.
Cash advances typically have higher interest rates than standard credit card purchases, with most APRs ranging from 19% to 22%. They also attract a fee worth 3% to 5% of the transaction and are often not eligible for features such as a 0% intro APR period or reward points. There are also some credit cards that charge the same interest rate for purchases and cash advances and, but the cash advance fee still applies.
What transactions are classified as a cash advance?
Using your credit card to withdraw money from an ATM, bank branch or at the checkout clearly qualifies as a cash advance. Other transactions considered as “cash advances” may vary depending on your issuer, but could include:
- Buying foreign currency or traveler’s checks
- Gift card or prepaid debit card purchases and top-ups
- Using a non-BPAY registered billing service to pay bills
- Utility and government charges
- Transactions at physical or online casinos (which can include money spent on food and beverages)
- Other gambling transactions, such as buying lottery tickets or scratchies
- Transferring funds from your credit card account to any other bank account
Can I transfer money from a credit card to my bank account?
For a full list of what your credit card issuer considers a cash advance and the charges you’ll incur, see your card’s Product Disclosure Statement.
Why do banks charge higher interest rates for cash advances?
Cash advances are similar to short-term loans in that they provide you with funds on short notice. The cash you get can then be used for anything you want, including transactions you wouldn’t normally be able to use a credit card for, such as paying other debts. As such, these transactions are considered as being a greater risk than standard credit card purchases.
A higher standard interest rate can help lenders offset this risk by providing them with more potential profits when you use your card for a cash advance. The rates and fees applied can also help deter you from regularly using a credit card for cash advance transactions, which also reduces the potential risk for lenders.
What fees and charges apply when using a credit card for a cash advance?
Using your credit card for a cash advance should be a last resort, and if you do end up taking this path, remember the following.
Cash advance fee. Cash advance fees are usually charged as a percentage of the total cash advance amount. For example, if you withdrew $1,000 on a credit card with a cash advance fee of 3%, you would pay a fee of $30. This fee will add to the balance on your card and increase your interest charges.- Interest charges. Interest applies from the day you make the cash advance transaction and quickly adds up. For example, if your credit card had a cash advance rate of 21.99% and you made a cash advance transaction worth $1,030 (with a 3% cash advance fee), you would be charged $18.64 for the first month you carried this debt. If you only paid the minimum off it each month, it would take you around 9 years to pay it off and cost a total of $1,274 in interest.
- ATM fees. Some providers and third-party companies will charge an additional fee when you withdraw money from an ATM outside your provider’s network. These charges will add to the overall cost of your cash advance. You may be able to avoid these fees by using an ATM that’s part of your provider’s network. For example, if you have a Westpac credit card and get cash out at a Westpac ATM.
- Cash advances overseas. If you use a credit card for a cash advance overseas, you could attract other charges, including ATM fees and currency conversion fees. These will be added to the total cost of the cash advance, leading to even higher interest charges.
Cash advance fee. Cash advance fees are usually charged as a percentage of the total cash advance amount. For example, if you withdrew $1,000 on a credit card with a cash advance fee of 3%, you would pay a fee of $30. This fee will add to the balance on your card and increase your interest charges.Cash advances and credit card repayments
Following the credit card reforms in 2012, banks now have to allocate your repayments to the debt that is accruing the highest interest first. So if you’ve used your card for both purchases (which might accrue interest at 14%) and cash advances (which collect 26% interest), your repayments will go directly to your cash advances. If you’re trying to repay your purchases without collecting interest, it’s important to remember this and where your repayments are actually going.
Pros and cons of cash advances
Pros
- Quick access to cash
- Can borrow money against your credit line
- Lower APR than payday loans
Cons
- High APR compared to purchases and balance transfers
- Cash advance fees
- May have a cash withdrawal limit
What are the alternatives to cash advances?
If you want to avoid the extra fees and high-interest rates that come with using your credit card for a cash advance, you can consider the following alternatives:
- Debit cards. Using your debit card to withdraw money from your bank account won’t attract cash advance fees. In fact, it’s likely to be fee-free if you stick to your own bank’s ATM network.
- Direct bank transfers. If you need to make a payment straight away, you could consider a direct transfer from your bank account. This allows you to pay anyone using your own money instead of funds from your credit card, which means you won’t be charged interest or a cash advance fee.
- Loans. If you need extra funds, you may also want to consider getting a short-term loan or a personal loan to cover the costs. These options could have lower interest rates than credit card cash advances. Plus, some short-term loan issuers can give you access to approved funds on the same day or by the next business day.
Bottom line
Cash advances can be convenient when you need money in a hurry and have no other option, but the rates and fees they attract mean that cash advances should only be considered as a last resort. If you still think you may use your credit card for a cash advance, you may want to compare credit cards with low cash advance rates to see if there is an option that will work for you.
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