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While credit cards are mainly designed to pay for purchases, you can also use them to obtain 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 is important to consider whether the convenience of using a credit card for a cash advance is worth it.
Use this guide to discover what transactions are defined as cash advances, the reasons credit card providers usually charge a higher interest rate and the fees and charges you may pay when you make a cash advance. We also look at your alternatives to making cash advance transactions and answer frequently asked questions so you can use your credit card in a way that works for you.
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 ranging from 19% p.a. to 23% p.a. They also attract a fee worth 2-3% of the transaction and are not eligible for features such as interest-free days or reward points. There are also some credit cards that charge the same interest rate for purchases and cash advances, although 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:
For a full list of what your credit card issuer considers a cash advance and the charges that will you will incur, please see your card’s Product Disclosure Statement.
Cash advances are similar to short-term loans in that they provide you with funds at short notice. The cash you receive 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 profit when you use your card for a cash advance. The rates and fees applied may also help deter you from regularly using a credit card for cash advance transactions, which also reduces the potential risk for lenders.
If you are comparing balance transfer credit cards, check the rate of interest that applies after the introductory period. Often the low or 0% interest rate will revert to the cash advance rate, for any outstanding balance, at the end of the introductory period. In extreme cases, this could mean you go from paying 0% interest on debt during the promotional period to paying 23% p.a. once the rate reverts.
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 be added to the balance on your card and increase your interest charges.Following the credit card reforms in 2012, banks have to allocate your repayments to the debt that accrues the highest interest first. So if you have used your card for both purchases (which might accrue interest at 14%) and cash advances (which collect 22% interest), your repayments will go directly to your cash advances. If you are trying to repay your purchases without collecting interest, it is important to remember 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 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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