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 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.
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 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. Usingyour 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
Most 0% interest offers apply to standard purchases or balance transfers, so cash advance transactions are generally not eligible for the promotional rate of interest.
Yes, you can transfer this debt to a balance transfer credit card and take advantage of an introductory interest rate, providing you meet the card’s eligibility requirements and are approved by the issuer.
Cash advance fees vary from one card issuer to the next. It is usually represented as a dollar amount, for example S$15 or around 6% of the transaction, whichever is greater.
Amy is a senior writer at Finder with more than 10 years experience covering credit cards, personal finance and various lifestyle topics. When she’s not sharing her knowledge on money matters, Amy spends her time as an actress.
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.