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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.
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.
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:
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.
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.
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.
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.
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:
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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