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.

Last updated:

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.

Use this guide to learn 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 advances and answer frequently asked questions so you can use your credit card in a way that works for you.

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 ranging around 28% p.a, with interest being compounded daily. They also attract a fee generally worth 6% 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.

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
  • Purchase of traveller’s cheques or money orders
  • Cash equivalent purchases on Paypal, such as transferring funds to a Paypal account
  • Transactions at casinos such as the purchase of online gambling chips.
  • Other gambling transactions, such as buying lottery tickets.

For a full list of what your credit card issuer considers a cash advance and the charges that will you’ll incur, please see your card’s Terms and Conditions.

Cash-card-895x278

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.

  • atm cash withdrawalCash advance fee. Cash advance fees are usually charged as a percentage of the total cash advance amount. For example, if you withdrew S$1,000 on a credit card with a cash advance fee of 6%, you would pay a fee of S$60. 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. For example, if your credit card had a cash advance rate of 28 % p.a. and you made a cash advance transaction worth S$1,060 (with a 6% cash advance fee), you would be charged S$25.01 for the first month you carried this debt, notching up the balance due to S$1085.01 in the first month itself. If you only paid the minimum amount due each month, it would take you many years to pay off the interest, which is being compounded on a daily basis from the day you took the cash advance.
  • 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.
  • 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 advances and credit card repayments

Also, important to remember that banks 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 around 22% to 25%) and cash advances (which generally collect 28% interest and more), 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.

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.

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.

Frequently asked questions about credit card cash advances

Back to top

Pictures: Shutterstock.

Ask Finder

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy Policy and Terms.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site