What Is a Cash Advance on a Credit Card?

‍Anna Yen, CFA, is a financial wellness expert with two decades of experience in financial markets. This includes on the trading floors of JPMorgan and as a Director at UBS. She specializes in personal finance, derivatives, and alternative investments including crypto.

Over to Anna.

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What Is a Cash Advance on a Credit Card?

In 2022, rising inflation meant more Americans relied on credit cards than they did the year before. But what if you need cash to pay bills or avoid card swipe fees?

Credit card cash advances grant the flexibility to turn your invisible credit line into cold, hard cash. Though convenient, they’re not free – and yes, they can impact your credit.

A credit card cash advance is a short-term loan taken against your card’s credit limit. These loans are granted in cash, which you can use to pay for rent, gas, or various cash-based purchases.

Here’s what else to know.

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How do Credit Card Cash Advances Work?

Credit card cash advances share some traits with both credit cards and debit cards.

To start, you can pull cash from your card in at least one of three ways:

• Via ATM withdrawals using your physical card and PIN
• By cashing, depositing, or spending lender-issued “convenience checks”
• At a bank teller or retailer checkout terminal (you may be required to provide identification and/or your PIN)

But instead of pulling funds from your bank account, the cash advance pulls from your credit line. The withdrawn amount will show up on your credit card statement and can be repaid just like a regular transaction.

Unfortunately, credit card cash advances also have several nuances and differences to watch for.

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Some Non-Cash Transactions Count as Cash Advances

Depending on the merchant and your card issuer, some card swipes count as cash advances. (Even if you don’t withdraw physical cash.) Examples include:

• Wire transfers, traveler’s checks, and money orders
• Initial deposits in banking or financial accounts
• Overdraft protection fees on checking or savings accounts
• Precious metal, foreign currency, and virtual currency purchases
• Lottery and gambling-related purchases
• And even buying certain gift and prepaid debit cards

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Cash Advance Limits

Credit card issuers often limit cash advances to a portion of your total credit limit.

For instance, if you have a $10,000 credit limit and a 20% cash advance limit, you can withdraw $2,000 cash against your credit line. However, you’ll have to have enough unused credit to spare. (I.e., if you’ve spent $9,000 of your $10,000 allowance, you can only withdraw $1,000 cash.)

Note that some ATMs or retailers may set their own daily cash advance limits separate from your card issuer’s limits.

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Higher APRs than Card Purchases

Most lenders set higher interest rates for cash advances than for regular card purchases or balance transfers. The difference can range from a few percentage points to nearly double the rate, depending on the card.  

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Cash Advance Fees

Most credit card issuers also charge fees to withdraw cash against your credit line. This may be set as a percentage of the advance or a flat fee. Some also set minimums – for instance, that you’ll pay $5% or $5, whichever is greater.

These fees may with posted to your credit card statement or subtracted from the amount you withdraw. For instance, if you withdraw $100 with a $5 fee, the ATM may pay out $95. However, you’ll still have to repay – and owe interest on – the full $100.

Aside from issuer fees, you may also have to pay separate ATM or bank fees to withdraw cash.

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No Grace Period

Credit cards usually extend a grace period, which means you won’t start accruing interest for a set number of days. (Usually around three weeks, though exact time frames vary.) Grace periods give you a chance to pay off your balance without incurring extra charges.

But most cash advances waive the grace period and start charging interest the day you withdraw funds.

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Does a Credit Card Cash Advance Hurt Your Credit?

Since cash advances don’t require a separate application, there’s no hard credit check to withdraw the loan. But that doesn’t mean they can’t impact your credit in other ways.

To start, cash advances count toward your credit utilization. Your utilization measures the amount of revolving credit you owe versus how much you can theoretically take out. (E.g., if you have a $10,00 credit line and owe $1,000, your utilization is 10%.)

Since your credit utilization makes up around 30-35% of your credit score, a too-high credit utilization can actually lower your credit score. It’s wise to keep your usage under 30% of your total available credit – under 10% is even better!

Generally, if you repay your cash advance quickly, a short-term loan shouldn’t harm your utilization. However, if you take on more high-interest debt than you can afford, it’s easier to fall into a debt trap. And if you make a late payment or miss one entirely, you can significantly damage your credit score.  

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Alternatives to Credit Card Cash Advances

Though no debt is risk-free, cash advances carry higher interest rates than many other kinds of loans. Consider alternatives like:

• Using your actual credit card
• Cash advance apps to tap future paychecks (like Cleo Plus*, which can spot you up to $250** with no interest, credit checks, or direct deposits)
• Personal loans or payday alternative loans
• Promotional credit card offers like 0% introductory rates or low-rate personal loans that tap your credit line
• Borrowing from friends or family (don’t forget to write a binding contract!)

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Of course, the best way to avoid falling into debt is to build your emergency savings fund and use it as needed.

And above all, ask yourself: Is this purchase really worth it?

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Is a Credit Card Cash Advance a Good Idea?

Credit card cash advances have high interest rates, no grace periods, and raise your credit utilization. In other words: for most people, they’re an unnecessary debt with better alternatives. If you need cash in a hurry, cash advance apps or small personal loans may offer better rates and terms.

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Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference.  
Big love. Cleo 💙

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*Cleo Plus is our subscription service, which offers eligible users cashback on your money, information on your credit score, and access to cash advances (”Cash Advance”). Advance amounts will vary based on eligibility. If you don’t want to subscribe, you can also apply for cash advance by contacting our customer service at team@meetcleo.com. To learn more about eligibility, repayment, and overall terms, please visit: meetcleo.com/terms.

**Eligibility requirements apply. Not all users will qualify. Advance amounts range from $20 to $250. Same day transfers subject to express fees. Visit meetcleo.com/terms for more information.