Cash advance

A cash advance is the card used as a cash machine: money drawn from the credit line instead of a purchase charged to it. The card treats the two differently, and the difference is written into its terms as a separate cash advance APR, a cash advance fee and a cash advance limit. An advance costs a fee the day it is taken and accrues interest from that same day, with no grace period, so even an advance repaid in full at the next statement costs something, where a purchase repaid then costs nothing.

In a sentence

• "A $500 cash advance cost $25 in fees on the spot and $12.32 in interest by the time the statement arrived."
• "The card treated the money order as a cash advance, so it earned no rewards and had no grace period."
• "A cash advance is a loan from the card at its highest rate; a purchase is interest-free until the due date if the statement is paid in full."

How it works

1. Cash is drawn against the card's credit line, at an ATM with the card's PIN, at a bank counter, by a convenience check the issuer mailed, or through a transaction the issuer classes as cash.
2. A fee is charged at once, commonly a percentage of the amount with a minimum, so a small advance pays the minimum fee. An ATM operator may add its own fee.
3. Interest starts the same day, at the cash advance APR, usually higher than the purchase APR, with no grace period, so repaying the advance at the statement stops the interest but does not avoid it.
4. The advance counts against a cash advance limit, a portion of the credit limit that the statement lists separately.
5. It appears on the statement as its own balance at its own rate. Any payment above the minimum goes to the highest-rate balance first, which is usually the advance.
6. It earns no rewards, on cards that pay them.

Cash-like transactions are the surprise, because nothing about them feels like a withdrawal.

An example

A $500 draw, with the card's terms as the example's assumptions: a 24.99% purchase APR, a 29.99% cash advance APR, and a cash advance fee of 5% with a $10 minimum.

The advance charges 0.082% a day, about 41 cents on $500, from the day it is taken, and the fee is charged however soon the cash is repaid. Thirty days cost $37.32, 7.5% of the amount for one month; the same $500 as a purchase would have cost nothing with the statement paid in full, and $10.27 if carried for the same thirty days at the purchase APR.

Why it matters

A cash advance is the most expensive way to borrow from a card, and it is easy to take by accident. The decision it changes is how to cover a shortfall: a bill that takes cards is cheaper paid as a purchase, inside the grace period, than with cash drawn from the same card, and a bill that does not take cards is usually cheaper handled by a call to the biller than by an advance. The mistakes it prevents are the quiet ones: a credit card used at an ATM because it was the card in hand, a money order bought with a card, a peer-to-peer payment funded from a card instead of a bank account. When an advance is unavoidable, the fee is fixed and the interest is not, so repaying it before anything else on the card is what limits the cost.

Cash advance versus a purchase

A purchase is charged to the card at the purchase APR, earns rewards, carries no fee, and is interest-free until the due date when the statement balance is paid in full; a cash advance is cash drawn at the cash advance APR, earns nothing, carries a fee from the first day, and has no grace period at all. The two sit on the same statement as separate balances at separate rates, and they draw on different limits, the cash advance limit being the smaller. See How to budget with a credit card without overspending for the routine that keeps a purchase interest-free.

Common questions

Is a cash advance the same as a balance transfer? No. A balance transfer moves a balance from another card onto this one, often at a promotional rate, for a transfer fee; a cash advance draws cash from the credit line at the cash advance rate. Both carry a fee, and only the transfer can carry a promotional rate.

Does a cash advance affect my credit score? Not on its own. It is reported as part of the card's balance, not as a separate event, so it raises credit utilization, the share of your limits in use, like any other balance until it is repaid.

How do I pay off the cash advance before the purchases? Pay more than the minimum. The amount above the minimum is applied to the balance with the highest rate first, which is the advance on almost every card, so a payment large enough to cover the minimum plus the advance clears it that month.

Is using a credit card at an ATM a cash advance? Yes, whenever the card is a credit card, whether the ATM is the issuer's own or another bank's. A debit card at an ATM is a withdrawal from your checking account, with no fee from the card and no interest.

Is a paycheck advance a cash advance? The name is shared and the product is not. A paycheck advance is an early payment of wages already earned, repaid from the next paycheck; a cash advance is a draw on a credit card's line, with a fee and interest at the card's highest rate. A payday loan is a third thing, a short loan due on the next payday, priced far above a card's cash advance rate.

Go deeper

• The Credit card payoff calculator shows how long a balance takes to clear at the payment you make now, what the interest costs, and what to pay each month to be done by a date you choose.
• How to budget with a credit card without overspending keeps every card purchase inside the grace period, paid from money the budget already counted as spent.
• What to do when you can't pay a bill this month ranks the bills by consequence and names the arrangement each kind of biller offers to a customer who calls before the due date.