Rebecca Goodman
Rhiannon Philps
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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 explain what a credit card cash advance is, how they work, the costs involved and the best alternatives.
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What is a 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 up to 56 days) to clear the balance before you are charged interest.
With a cash advance you won’t normally get this ‘grace’ period and you are usually charged interest from the moment you withdraw the money. This can often be at a higher rate than the standard one charged for making purchases, and there could be an additional cash withdrawal fee too.
Even if you have a credit card with a 0% interest rate, this almost certainly won’t apply for cash advances so you would still need to pay interest and any other fees.
What payments are cash advances?
Some other transactions are also viewed as cash advances, not just cash withdrawals. The rules vary by credit card provider, so check the terms and conditions of your card first.
The following credit card transactions are likely to be termed as cash advances, so may come with extra fees and a higher interest rate:
- housing costs, including mortgage payments
- buying foreign currency
- paying a utility bill
- spending money on gambling such as lottery tickets
- electronic cash transfers such as sending money to a current account
- share dealing, or buying cryptocurrency
How do credit card cash advances work?
Getting a cash advance from a credit card is fairly simple and works in the same way as a debit card. For example, if you want to take out cash from an ATM, you will just need to insert your card and key in its specific PIN to take out the cash.
However, the main difference is you won’t be charged if you withdraw cash from a debit card (unless you use an ATM that charges a withdrawal fee). If you use a credit card for a cash advance, you will be charged interest from day one and you are likely to face extra fees too.
Cash advance fees are usually charged as a percentage of the amount of cash you take out, often between 2.5% and 5%, or a fixed minimum charge, whichever is higher.
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.
You may be able to use your credit card for cash advances abroad. However, as well as the usual fees, you are likely to face foreign transaction fees which would make it an even more expensive option.
Should I use a credit card for a cash advance?
A credit card cash advance can be very expensive so it will rarely be a good idea if you have an alternative option. There are likely to be cheaper ways to access cash, so you should only consider a credit cash advance in an emergency and when you have no other choice.
However, while cash advances will rarely be the best option, they will almost certainly be cheaper than taking out a payday loan.
If you do take out a cash advance with your credit card, make sure you pay off the balance as soon as possible to minimise the costs you’ll have to pay.
Using your credit card for a cash advance can also appear on your credit history. This could have an impact on your credit score, especially if you withdraw cash from your card multiple times. Cash advances could indicate to anyone looking at your credit file that you are struggling financially, and may make them more reluctant to offer you credit, for example.
Also bear in mind that, if you use your credit card for a cash advance, any purchases you make with that cash won’t be eligible for protection under Section 75 of the Consumer Credit Act, unlike if you made the purchase directly from your credit card.
Alternatives to a cash advance
If you’re thinking of taking out a cash advance on your credit card, you will be charged for this straightaway. If you need to access cash or pay for something, there are likely to be cheaper options available, such as:
Money transfer credit card
Money transfer credit cards are specialist cards that allow you to move money from your credit card to your bank account. You could then withdraw the money from your account without paying any further fees.
Bear in mind that you will often be charged interest on money transfers, but you may find cards that offer 0% rates for a limited period. If you pay off your balance before the 0% period ends, you won’t be charged for making the money transfer.
» MORE: Money transfer credit cards explained
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% period, this would be a cheaper option than a cash advance.
Any purchases you make on the card between £100 and £30,000 could also be eligible for Section 75 protection.
Family and friends
This won’t be an option for everyone, but it may be worth asking family members or friends for a loan. This can be a cheap way to access cash, but make sure you consider the impact that borrowing money could have on your relationship. It is a good idea to put the terms of the loan in writing, so both parties agree on how and when it will be repaid.
Make sure you only borrow money from people you trust. Be wary if anyone approaches you and offers to lend you money as they could be a loan shark.
Personal loan
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.
However, personal loans are not as flexible as credit cards and may not be suitable if you only need to borrow a small amount of money.
Overdraft
If you have an overdraft on your current account, it may make more sense to use this rather than withdrawing cash from your credit card. Even though overdrafts can charge high interest rates (typically up to 40% and sometimes more), they may be an option if you need to borrow a small amount of money over a short period. However, if you don’t pay off your overdraft promptly, this could turn into an expensive way to borrow.
Some people may have a limited interest-free overdraft, which would allow you to dip into your overdraft at no extra charge. Check the terms of your overdraft to see if you have an interest-free amount and to find out what charges you could face.
» MORE: How do overdrafts work?
Help with paying your bills
If you are struggling to pay your household bills and are considering a cash advance, it is a very good idea to seek help. Several free and independent debt charities can help you find alternatives, including StepChange and National Debtline.
» MORE: How to get debt help
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