Although not generally advised, some of you may find that you need to get a cash advance. For example, if you ever find that you are going to come up short one month, you need to get cash in a hurry. A credit card cash advance is probably not the best way to get cash quick.

However, if you’ve gotten one before or are considering getting one in the future, it’s good to know what it is. Credit card cash advances can come with fees and high interest payments, so let’s break it down.

Table of Contents

What Is a Cash Advance on a Credit Card?

If you read the terms of your credit card carefully, you might notice a smaller, separate limit listed along with your credit limit. Note, that smaller limit is your cash advance limit and it is usually only a few hundred dollars. It exists to allow you to use your credit card as a way to get cash in case of an emergency, when you can’t charge an expense.

How It Works

Making a withdrawal with your credit card is different from making one with your debit card. Using a debit card, you are withdrawing money you already have in your checking account. This way, you don’t incur any interest charges because you’re not taking out a loan. You are simply using money that you already have. The only fees you may accrue through this route are ATM fees.

On the other hand, getting money out of a credit card cash advance is different. When you withdraw cash using a credit card, you’re essentially taking a cash advance loan. You can use your credit card at an ATM or go to a bank to claim your cash advance loan. However, your loan will come with interest and fees. Your cash advance is basically a short-term loan and loans can be expensive.

What Does It Cost?

Of course there are ways to use a credit card without incurring any costs or fees. If you choose a credit card with no annual fee and you always pay the bill on time, you won’t have to pay a dime. With these good habits, you’ll be beating the system and saving money in the process.

You will be able to build up your credit score this way. The money you saved can be used towards your retirement or a home. However not everyone is able to follow these steps either by choice or by necessity.

If you don’t make your monthly credit card payments on time, you may be subject to interest charges. Interest rates on credit cards are high enough that credit card debt can quickly spiral out of control and really hurt your credit score. That is why it’s always best to pay your bill in full every month.

The vast majority of credit card users charge purchases and then pay the bill when they can. The credit card cash advance is a much less commonly used feature of the credit card. Here’s something a lot of folks don’t realize when they use their credit card to get cash: If you take a credit card cash advance, you’ll pay interest rates on that loan that are generally higher than the APR on your credit card. Plus, you’ll start racking up interest as soon as you get the cash.

Unlike the charges you might make on your credit card, the money that you take from a cash advance loan starts costing you immediately. You don’t have until the end of the month to pay it back and you don’t have a grace period. Your loan starts earning interest as soon as you take the cash. The few hundred dollar cash advance that you take will start multiplying quickly.

Bottom Line

The high interest rates and fees associated with a credit card cash advance are generally thought of as a last resort. Don’t take one unless you really need it.

However, emergencies do happen and at the worst times, so this can be a tool that you can use to your advantage. Just keep in mind that interest and fees will start immediately after you get the cash in your hands. For more posts like this, check out our list of bank guides!