Credit card: How do I get a cash advance with a credit card?

Cash is king – especially if you’re in a tight spot and need access to it quickly. If you have a credit card, you may need to use what’s known as a cash advance. However, take time to think before you withdraw this money.

We hope this article will help you understand the true nature of this transaction before obtaining a cash advance with a credit card.

What are cash advances on a credit card?

A credit card cash advance allows you to borrow money from your card issuer by withdrawing cash directly from an ATM. Apart from ATMs, balance transfers, money orders and credit card checks are also considered cash advances.

Admittedly, cash advances are convenient for the user, as they can get the money instantly and, on rare occasions, this option can be cheaper than a quick loan. Apart from that, the practice can be harmful if you do it regularly.

This cost is rarely discussed in detail, and the following section will give you an idea of the real cost of using a cash advance.

The real cost of cash advances

Many people equate obtaining a cash advance from a credit card with withdrawing money from a debit card, but there are distinct costs specific to cash advances that really highlight their nature.

When examining the actual costs of a cash advance, consider the following:

High interest rates

Compared to a traditional credit card,interest on a credit card cash advance is accrued almost immediately after you make the transaction. As a result, the interest is higher than the usual credit card interest.

The average credit card charges 19.99% on interest carried over from one period to the next. Interest rates on cash advances can reach 22.99% or more.

Think about additional costs

Even if the credit card issuer differs, the surcharge policy remains the same. Credit card cash advance fees can be calculated on the basis of a fixed amount per cash advance or a percentage of your transaction. And don’t forget that ATMs can sometimes have additional fees!

You don’t get a grace period

Cash advances do not offer a grace period (usually 21 days) during which no additional interest will be charged if you pay your balance by the due date. In the case of a cash advance, you will be charged interest from the transaction date until your balance is repaid in full.

Minimum credit card payment

After a cash advance, you’ll still need to make minimum monthly payments on your credit card. At Quebec, minimum payment laws are strict: you must pay at least 4% of your balance or $10, whichever is greater.

You earn no reward points

We’re big fans of using credit cards to earn rewards for everyday purchases. When you use cash advances, you’re actually hurting your ability to earn rewards points. Cash advances are not considered an eligible transaction by rewards programs.

Are there any alternatives to a cash advance?

Cash advances are rarely recommended as a viable option. In fact, the only time to use them is when you’ve really exhausted all your options.

Here are a few ideas you can use before resorting to the cash advance option:

Set up an emergency fund

Emergency funds are aptly named as they help you cover unexpected expenses in an emergency. Think of it as your first line of defence before considering going into debt to get out of a situation. Generally, you should allow 3 to 6 months’ expenses. Once you’ve used it up, you can replenish it permanently, interest-free!

Ask your bank for a line of credit

Before taking out a cash advance, you can also take advantage of a less expensive option called a line of credit. This is another form of credit that lets you borrow for whatever you want. The advantage is that the interest rate is nowhere near that of a cash advance, making it a more attractive option.

Access the overdraft

An overdraft gives you access to more money than you have in your account. Let’s say you have $300 in overdraft protection. If you needed to buy something that cost $50 and only had $25, your account would end up at -$25, but you’d avoid the insufficient funds fee. Monthly fees are associated with overdrafts, but it’s a safer option than cash advances.

Which credit cards offer low-interest cash advances?

Now that you know what a cash advance is, you may still be tempted to use it for personal reasons. If you’re going to use it, you might as well find a few options with as little financial damage as possible. Here are some great credit card options with low cash advance fees:

Alternatively, you can also turn to balance transfer offers, such as this one from CIBC (for the CIBC Select Visa* Card) or this other balance transfer offer from MBNA (for the MBNA True Line^® Mastercard^® credit card).

Bottom Line

Getting a cash advance from a credit card is expensive and can hurt you financially in more ways than one. They should be avoided except as a last resort, but it’s up to you to decide whether or not to use this option.

At least you’re informed and can decide whether or not it’s right for you. If you have to resort to a cash advance, it may be a sign of a larger financial problem requiring budgeting and financial discipline. Don’t be afraid to talk to a professional; get help when you can!

Cash advances – Frequently asked questions