Cash advance credit cards: fees, charges and interest explained
A cash advance credit card allows you to withdraw money up to a specific limit. But fees and high interest rates can make it a costly option.
Many credit cards allow you to withdraw cash at a regular cash machine, just as you would with a debit card. The catch is that it can be a costly way to borrow, and there may be less expensive alternatives.
Here we'll explain what a credit card cash advance is, how they work, the costs associated and the best alternatives.
What is a credit card cash advance?
Withdrawing money on your credit card is called a cash advance. This is because the provider is giving you money, which you will then have to pay back.
Usually when you spend with a credit card you have a period (typically 56 days) before you need to clear the balance before you are charged interest.
With a cash advance you usually are charged interest from the moment you withdraw the money. This may be at a rate that is higher than the standard purchase rate, and there could be an additional cash withdrawal fee too.
What payments are cash advances?
Some types of payments are also deemed as cash advances. The rules vary by credit card provider, so check the terms and conditions of your card first.
The following credit card payments are likely to be termed as cash advances and thus carry a higher interest rate:
- Housing costs including mortgage payments
- Buying foreign currency
- Paying for a utility bill such as your energy provider
- Spending money on gambling such as lottery tickets
- Electronic cash transfers
- Paying for gift vouchers
- Buying stocks, shares, or cryptocurrency
How do credit card cash advances work?
There is usually a limit on the amount of money you can take out in a cash advance. The exact amount will depend on your credit card, so check the terms and conditions. Also check about any fees associated with the advance before making one.
You don’t need to apply for a cash advance from a credit card. You can just do one at a cash machine or by making a payment deemed a cash advance.
Alternatives to a cash advance
If you’re taking out a cash advance on your credit card, you will begin paying for this immediately. There may be cheaper options available for you:
0% credit card
A 0% credit card gives you a period where you aren’t charged any interest on new purchases. If you have a big item you need to buy, and you can pay the amount off within the 0%, this would be a cheaper option.
Personal loans are available from many providers and allow you to borrow money at a set interest rate. This might be an option if you want to borrow a higher amount over a longer period of time.
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Help with paying your bills
If you’re struggling to pay your household bills and considering a cash advance, the best option could be to seek help. Several free and independent debt charities can help you find alternatives, including StepChange and National Debtline.
Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more