What is a cash advance on a credit card?

A cash advance on a credit card is a feature that allows cardholders to withdraw cash, typically from an ATM or bank teller, using their credit card.

How do cash advances work?

There are different ways to get a cash advance, including:

• ATM withdrawal: Most ATMs can be used to transfer money from a credit card, similar to using a debit card. The amount withdrawn is treated as a cash advance.
• Bank teller: Cardholders can visit a bank and request a cash advance in person. This involves presenting the credit card and a form of identification to the teller.
• Phone request: Some credit card issuers accept cash advance requests over the phone. The advance is then deposited into a bank account.

It’s important to note that the limit on cash advances is typically lower than the overall credit limit available for credit card purchases.

Fees and costs associated with cash advances

Cash advances on credit cards come with various fees and costs. Here are potential costs and factors to be aware of:

• Transaction fees: Most credit card issuers charge a transaction fee for each cash advance. This fee is often a percentage of the amount withdrawn, typically around 3-5%, or a flat fee, whichever is higher.
• Higher interest charges: The rate for cash advances is usually higher than the rate for regular credit card purchases. Regular purchases may have an interest-free grace period if paid off promptly, unlike cash advances.
• Lack of grace period: With cash advances, interest charges begin accruing the moment the cash is withdrawn. This makes them more expensive if not repaid quickly.

Cash advance alternatives

There are different ways to access cash in an emergency. Examples include:

• Personal savings: Having a personal savings account can help provide a readily available source of funds. Building a safety net with a savings account is a prudent financial strategy. High-yield savings accounts, such as the PayPal Savings account, may be useful tools for helping grow savings as they offer competitive rates.
• Emergency fund: An emergency fund is money set aside specifically for unexpected expenses such as medical emergencies or car repairs.
• Money transfer services: Services which allow customers to transfer money quickly and securely can be a viable cash advance alternative if trying to move money between accounts or receive money from someone else.