When you're short on cash but have available credit on your card, your credit card's cash advance feature allows you to borrow money against your credit limit. However, cash advances often come with very high fees and interest rates, making them an expensive way to borrow money.
How a cash advance works
With a cash advance, you're essentially getting a short-term loan from your credit card issuer. There are a few different ways to take out a cash advance:
At an ATM using your credit card and PIN
At a bank teller window by showing your credit card
By using cash advance checks sent by your card issuer
Getting "cash over" at a cash register when making a purchase
The amount you can get through a cash advance is limited by your card's cash advance limit, which is usually lower than your full credit limit.
Fees and interest rates for cash advances
While convenient, cash advances come at a steep price. Here are the typical fees and costs:
Cash advance fee: This is usually 3-5% of the cash advance amount with a minimum of $10.
Higher APR: The annual percentage rate (APR) for cash advances is often 20%+ higher than the APR for purchases.
No grace period: Interest starts accruing immediately with no interest-free grace period.
For example, taking a $300 cash advance with a 24.99% APR and $15 fee means you'd owe $330 right away and interest charges begin immediately.
When a cash advance is a bad idea
Due to the exorbitant fees and interest rates, cash advances should be avoided except in emergencies when no cheaper options exist. Alternatives like borrowing from friends or family, getting a bank loan, or using a 0% APR credit card are far less expensive.
When it could make sense
While inadvisable in most cases, sure, cash advances can be the best of limited options in certain situations, such as:
Avoiding late fees/penalties that are even costlier than cash advance fees.
Urgently needing cash and having no other way to borrow money or access funds.
Taking advantage of a temporary 0% APR promotion on cash advances.
Even then, cash advances should only be used as an absolute last resort and paid off as quickly as possible to minimize interest charges.
The high costs of cash advances mean they should be avoided whenever possible. But in a true financial emergency with no better alternative, they can provide needed short-term cash despite the painfully high price tag.