A cash advance fee is a charge you may receive for withdrawing funds from a credit card account. This can be done at an ATM, online, or at a branch of your bank.
Have you ever had a financial emergency and the only available option for some quick cash was getting a cash advance on your credit card? If so, you probably found that the fees in a credit card cash advance were different from your normal credit card purchase fees.
Additionally, the cash advance balance is also subject to a different annual percentage rate (APR – the annual interest rate) compared to the purchase balance APR. Below is an overview of what you need to know about the cash advance fee and the related cash advance costs.
Just as the term suggests, a cash advance lets you get cash using your credit card. This is different from the conventional use of credit cards to purchase items without cash. It may be useful when buying items that you cannot use credit for, such as making purchases from friends and family who do not take credit cards.
Taking out cash from your credit card is different from withdrawing cash from your debit card. The cash you get from your debit card comes from your checking account; whereas, a credit card cash advance is effectively borrowing from your credit card limit.
The credit card cash advance comes with a fee and other related costs that you pay when repaying the money, just as you do with credit card purchases. You can get a credit card cash advance through several means that vary based on your credit card company, including:
When you perform a cash advance transaction, the card company may either charge a flat fee or a percentage of the transaction. The fee is sometimes the higher of the two options.
Keep in mind that the amount of the cash advance fee may also vary based on how you access the cash. You may incur varying costs depending on whether you access the cash from an ATM, through a bank teller, by moving cash from your credit card to a checking account, or by cashing a convenience check.
Apart from the cash advance fee, card issuers will also charge interest on your cash advance balance, since you’re essentially borrowing cash from your credit card account. This interest charge is different from the interest charge on normal credit card balances.
The cash advance APR is typically higher than other credit card balance APRs, including the APR on a purchase balance. Also, the cash advance APR starts accruing immediately because it doesn’t have a Grace period. This is the main difference between a credit card purchase and a credit card cash advance.
Each credit card comes with different APRs, fees, and terms. Reading the fine print on your specific card will tell you what the interest rate and other terms are for your situation. There are several conditions related to the two main methods through which you can access a cash advance:
Compared to all other credit card fees, cash advance fees tend to be the highest. A cash advance provides some convenience and speed in accessing cash fast, but that comes at an extra cost, which can be an additional $10 to $50 in fees.
Credit card issuers may use one of the following methods to calculate your cash advance fee.
Cash advance fees have been increasing over the last few years. According to WalletHub’s Credit Card Landscape Report, the current average cash advance fee is 3.9% or $12.41.
One more factor to consider is the costs related to the withdrawal method you use for your cash advance. For instance, if you take out a cash advance through an ATM, you’ll likely incur an ATM owner surcharge. This further adds on to the other costs of a cash advance fee and interest charged by your card issuer. The average fee to withdraw money from out-of-network ATMs is about $4.72.
Cash advance fees also vary based on the currency transacted. If you’re travelling and you try to access a foreign currency cash advance from your credit card, you may incur higher fees. Some credit cards add between 1% and 3% to your cash advance with foreign transactions, which is in addition to ATM fees and the currency exchange.
A cash advance fee may also apply to cash equivalent transactions. Some examples of cash equivalent transactions include:
A cash equivalent transaction is treated like a cash advance even when you don’t take out cash from an ATM. However, the cash equivalent transaction fee may be different from a regular cash advance fee.
The interest on your cash advance balance applies as soon as you withdraw money from an ATM, transfer cash to a deposit account, or use a check. This is unlike the typical 21 to 25 day grace period that applies to most credit card purchase balances. The cash advance APR ranges between 20% and 36%, with an average of 21.20%. That’s frequently higher than a credit card purchase balance APR, which typically ranges between 14% and 23%.
A cash advance may be useful in several situations, including:
In all these cases, always compare the cost versus the potential benefit before making a decision. It’s also important to understand how your credit card payments are applied to a cash advance balance, so you can avoid accruing high interest on the balance.
A key aspect to remember is that a cash advance balance is usually treated as separate from your purchase balance. This is a good thing, since the higher cash advance APR that accrues without a grace period only applies to the cash advance balance.
What you should take note of is how your payments are applied to your cash advance balance and purchase balance. When you make the minimum credit card payment, that amount may go toward the purchase balance first. Thereafter, any payment over the minimum might be applied to your higher-interest balance, but not always.
In general, to pay off your cash advance balance (including the cash advance fee and interest), you will probably have to make more than the minimum credit card payment.
Under the Fair Credit Reporting Act, your card issuer is required to disclose your cash advance fee and provide information on how it’s calculated. You can find the details on your credit card agreement or the back of your billing statement.
Credit card issuers typically provide their customer service department number on the back of the credit card, so customers can call to have their questions answered as well.
Since cash advance fees and related costs can be expensive, you can try different strategies to limit them, including:
Apart from limiting your cash advance fees, you may have other options to avoid the fees, including:
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