What is a cash advance?

From getting money out of a cashpoint to buying foreign currency, find out which transactions are considered cash advances.

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By

Chris Lilly

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Most credit cards let you get cash or a “cash equivalent” using your account. Known as a “cash advance”, these transactions often attract an upfront fee followed by a higher interest rate than regular purchases. Cash advances also come with other restrictions, such as not being eligible for interest-free days or reward points, and they can harm your credit score.

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What is a cash advance on a credit card?

A credit card cash advance is normally a transaction that gives you quick access to cash via a cashpoint or bank. It typically comes with a high interest rate that begins to accumulate immediately (you can’t take advantage of the usual “up to 55 days interest-free“). “Cash-like” transactions, such as buying foreign currency, can also be classed as cash advances by your card issuer. Credit card providers have individual terms they use to define cash advances, and these definitions will be clearly outlined in the “summary box” and terms and conditions of your card.

Here, we’ve outlined the range of transactions that may be classified as cash advances and attract the cash advance rates and fees.

Common types of cash advance

  • Cash machine withdrawals. Using your credit card to withdraw money from a cashpoint or at the checkout is a cash advance. Additional fees could also apply if you use your credit card at a non-network ATM.
  • Buying foreign currency or traveller’s cheques. Using your credit card to buy foreign currency or traveller’s cheques is not a good idea. Such transactions will attract your card’s cash advance interest rate. Instead, if you’re going overseas, you should look into a card specifically designed for travel.
  • Spending money at a casino. It’s illegal for betting sites or casinos to take credit card payments for gambling purposes. But any other purchases at these establishments (perhaps food and drinks) can be made using a credit card and are treated by your card issuer as cash advances.
  • Funding an account at a crypto exchange. It’s generally a really bad idea to use a credit card to buy cryptocurrency, because it’s very volatile, and you could easily end up in negative equity (owing more than an asset has become worth). Many exchanges don’t take credit cards anyway, and many card issuers don’t allow payments to exchanges at all. But where it’s possible, it may well be classed as a cash advance.

How does the bank categorise a cash advance?

When you use your credit card, a “Merchant Category Code” (MCC) is sent, along with the name of the merchant and the amount of the transaction, from the payment network to your bank. That means your bank doesn’t know what you buy, but it knows where you buy it. If the MCC identifies that the merchant is a cash machine, or a travel money store, or a casino, for example, then the transaction will probably be categorised by your bank as a cash advance.

Does getting cashback at the till count as a cash advance?

No, cashback at the till usually won’t be classed as a cash advance. It’ll be classed as a purchase. However, most merchants won’t let you get cashback on a credit card.

Merchants pay a percentage-based fee on credit card transactions, so say you spend £1 and get £100 cashback, the merchant would almost certainly lose money on the transaction. A few merchants might let you get away with it, and in these cases, it’s probably because they haven’t “closed the loop” yet (and don’t realise they’re losing money each time).

In theory, if you got cashback at a merchant whose Merchant Category Code (MCC) identified it to your bank as being a merchant primarily offering cash-like services (travel money, betting, etc.), then the whole transaction might be classed as a cash advance. An example would be getting cashback at the bar in a casino while buying a round of drinks.

Does buying gift cards count as a cash advance?

No, buying gift cards usually won’t be classed as a cash advance. It’ll be classed as a purchase. Your card issuer will know how much you spent and where you spent it, but they won’t know what you bought.

In fact, buying gift cards can be a hack used by those seeking to maximise credit card rewards or wanting to take advantage of a limited-time partnership between a card issuer and a merchant (perhaps if they regularly spend money at a particular store but don’t need to buy anything right now). If you decide to give this a go yourself, make sure you check out the T&Cs because there might be an exemption for gift cards.

Some merchants won’t let you buy gift cards with a credit card, because of the percentage-based processing fees they have to pay. However, many are willing to shoulder this, because they know that a small proportion of gift cards never get redeemed.

Other transactions that may be defined as a cash advance on your credit card

  • Transferring between accounts. When you use your credit card account to transfer funds to a current account, your card issuer may view it as a cash advance. A good way to avoid paying interest on such transactions is to use your debit card instead. If you plan to use your credit card for electronic transfers, review the fees and charges at the onset.
  • Paying for an international money transfer with a specialist service. Arranging a cash pickup through Moneygram? Beating the bank on fees by using Wise to transfer money overseas? This may be classed as a “cash advance” by your card issuer.
  • Paying bills. Some credit card providers may consider making a mortgage or utility bill payment as a cash advance. Contact your provider for clarification.
  • Buying stocks and shares. Your card provider may consider this a cash advance.

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Where can I find the cash advance fees and charges for my credit card?

Most credit card issuers will charge both a cash advance fee and a cash advance interest rate for applicable transactions. If you want to know what you’ll be charged, you can usually find these details under your card’s product disclosure statement or terms and conditions under “fees and charges”.

Details of the cash advance interest rate are also included in the “Key Facts Summary” that credit card issuers must provide when you’re considering their card. But if you’re unsure or can’t find this information, contact your credit card issuer to confirm what rates and fees apply before choosing a credit card or using one for a cash advance.

What you need to know about cash advances

Cash advances are not treated the same as a regular purchase, and if you are planning to use your card for a cash advance, here’s what you need to know:

  • Maximum withdrawal limits. It’s not uncommon for credit cards to have daily, weekly and monthly cash advance limits in place. Maximum daily cash advance limits usually range from £100 to £500. Most providers only allow you to withdraw cash as a percentage of your overall credit limit, so don’t assume you have the full balance available.
  • High interest. Interest rates for cash advances can be up to around 40%, which is considerably high. This makes cash advances a rather expensive form of credit, and if you’re not in a hurry, getting a personal loan might be a better option.
  • No interest-free periods. Most credit cards allow cardholders an interest-free period if they pay their closing balance in full each month. These interest-free periods only apply to purchases and not to cash advances. When you use your card for a cash advance, it starts accruing interest immediately.
  • Cash advance fees. In addition to paying a high cash advance interest rate, you could also have to pay a cash advance fee. Typically, this is a percentage, for example, 3% of the transaction, with a minimum charge of £3. With this in mind, it’s better to withdraw a bigger amount in one go rather than make repeated trips to the cashpoint, as each withdrawal attracts a separate fee.
  • Minimum withdrawals. While you can use your credit card to pay for the smallest possible purchases, when it comes to withdrawing cash, you may have to deal with a minimum withdrawal amount of £10 or more.

What else should I consider before getting a cash advance?

Instead of using your credit card to make a cash advance, consider opening a money transfer credit card. Admittedly, there aren’t many available on the market, so they’re not easy to come by. But these types of cards allow you to transfer money from your credit card to your current account with little-to-no interest charged for an introductory period. However, you must make the minimum monthly payments on time or face running up huge charges.

If you plan on using your credit card for a cash advance, consider the following to help keep costs to a minimum:

  • Will you earn reward points? Typically, you won’t earn reward points for cash advances unless the credit card comes with some kind of promotional offer.
  • Are you overseas? If you’re considering using your credit card for a cash advance while travelling overseas, take into account that you could have to pay extra in the form of ATM fees and international transaction fees. Some cards offer 0% or low interest foreign transaction and currency conversion fees.
  • What other options are there? If you want to use your credit card, see if there’s a way to make a purchase instead of a cash advance. For example, if you can pay with your card instead of cash, you won’t need to withdraw money from your account. You could also use your debit card, consider getting a personal loan or ask your bank if it can provide a line of credit or an overdraft facility.
  • Do you want purchase protection? If you pay with a credit card instead of cash, you could be entitled to protection if something goes wrong with your purchase. Under Section 75 of the Consumer Credit Act, the credit card provider along with the retailer can be jointly responsible if you don’t get what you paid for.
  • How much do you want to withdraw? If you do decide to make a cash advance withdrawal, remember that there is a minimum cash advance fee. For example, many cards have a 3% fee, which would be £3 on a £100 cash advance. £3 is also usually the minimum fee, so even if you withdrew £50, you would still have to pay the £3 fee.

Credit cards generally aren’t designed to be used as an ATM card, so if you think you’ll regularly perform cash advances, you may want to consider another option to avoid accruing high fees and interest. Regardless, make sure to read the terms and conditions of your credit card before applying to ensure you’re not confronted with any nasty surprises.

Bottom line

Cash withdrawals often come with an upfront fee and higher interest rate, making them a costly source of cash. They can also sometimes have additional restrictions, such as no interest-free period or reward points. It’s worth also noting that cash advances can negatively impact your credit score, hurting your chances of getting credit products like credit cards or loans in the future. If you need money, consider alternatives to a cash advance.

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