Cash advances on credit cards can be a tempting solution when you need quick access to funds. However, they often come with high fees and interest rates, making them a costly borrowing option. Choosing the right credit card, or understanding how your existing card handles cash advances, is crucial to minimizing these costs. This guide will provide a comprehensive overview of the best credit cards for cash advances, helping you make informed decisions and potentially avoid unnecessary expenses.
| Feature | Description | Key Considerations |
|---|---|---|
| Cash Advance Fee | A percentage of the cash advance amount, or a flat fee, whichever is higher. Typically ranges from 3% to 5% of the advance amount, with a minimum fee (e.g., $10). | Look for cards with lower fees or, ideally, no cash advance fees. Compare percentage and minimum fees to determine which is more beneficial based on your typical advance amount. |
| Cash Advance APR | The annual percentage rate (APR) charged on cash advances. It's usually higher than the APR for purchases. | Prioritize cards with lower cash advance APRs. Be aware that interest accrues from the moment you take the advance, with no grace period. |
| Credit Limit for Cash Advances | The maximum amount you can withdraw as a cash advance. This is typically a portion of your overall credit limit. | Understand your cash advance limit before needing it. Contact your card issuer or check your online account. |
| Grace Period | The period between the end of a billing cycle and the date your payment is due. Cash advances typically do not have a grace period. | Recognize that interest charges begin immediately on cash advances. Pay them off as quickly as possible to minimize costs. |
| Impact on Credit Score | Taking out a cash advance doesn't directly affect your credit score. However, it can indirectly impact it by increasing your credit utilization ratio (the amount of credit you're using compared to your available credit). | Keep your credit utilization low. Aim to use less than 30% of your available credit. High credit utilization can negatively impact your credit score. |
| Alternatives to Cash Advances | Other options for accessing funds, such as personal loans, balance transfers, 0% APR credit cards for purchases, or borrowing from friends or family. | Explore these alternatives before resorting to a cash advance. They often offer lower interest rates and fees. |
| Rewards on Cash Advances | Most credit cards do not offer rewards on cash advances. | Don't expect to earn rewards on cash advances. The fees and interest typically outweigh any potential rewards. |
| Repayment Allocation | Credit card payments are often applied to lower APR balances first. This means that if you have both purchase and cash advance balances, your payments might go towards the purchase balance first, allowing the cash advance balance to accrue interest for longer. | Understand how your card issuer allocates payments. Consider making extra payments specifically towards the cash advance balance. |
| Foreign Transaction Fees | Fees charged when using your credit card for transactions in a foreign country, including cash advances. | Avoid using cash advances abroad due to these fees and potentially higher APRs. Consider a travel credit card with no foreign transaction fees or using your debit card. |
| Security Features | Features like fraud monitoring, purchase protection, and travel insurance offered by the credit card. | Consider these features, but prioritize low fees and APRs for cash advances. These features are more relevant for regular purchases. |
| Issuer Reputation & Customer Service | The overall reputation and quality of customer service provided by the credit card issuer. | Choose a reputable issuer with responsive customer service. This can be helpful if you have any questions or issues regarding your account. |
| Fees and Charges | All associated fees with the card, including annual fees, late payment fees, over-limit fees, and balance transfer fees. | Carefully review the fee schedule before applying for a card. Understanding all potential fees can help you avoid surprises. |
Detailed Explanations
Cash Advance Fee: This is a charge levied by your credit card issuer each time you take out a cash advance. It's usually a percentage of the amount you withdraw, often between 3% and 5%, but it can also be a flat fee, like $10 or $20. Crucially, the fee is charged immediately, adding to the already high cost of a cash advance. Always compare the percentage and minimum fee to see which is more advantageous depending on how much you plan to withdraw.
Cash Advance APR: The Annual Percentage Rate (APR) for cash advances is the interest rate you'll be charged on the outstanding balance. This APR is almost always higher than the APR for regular purchases made with the same credit card. Unlike purchases, cash advances typically don't have a grace period, meaning interest accrues from the moment you withdraw the money. This makes it vital to pay off the balance as quickly as possible.
Credit Limit for Cash Advances: Your cash advance limit is the maximum amount you can withdraw from your credit card as a cash advance. This limit is usually a portion of your overall credit limit, often significantly lower. It's essential to know your cash advance limit before you need to use it, as exceeding it can result in declined transactions and potentially over-limit fees. Check your online account or contact your card issuer to determine your specific cash advance limit.
Grace Period: A grace period is the time between the end of your billing cycle and the date your payment is due. During this period, you won't be charged interest on new purchases if you pay your balance in full. However, cash advances typically do not have a grace period. Interest charges begin accruing immediately from the date of the advance, regardless of whether you pay your bill on time. This is a crucial distinction that makes cash advances a particularly expensive borrowing option.
Impact on Credit Score: While taking out a cash advance doesn't directly impact your credit score, it can indirectly affect it through your credit utilization ratio. This ratio is the amount of credit you're using compared to your total available credit. A high cash advance can significantly increase your credit utilization, potentially lowering your credit score. Keeping your credit utilization below 30% is generally recommended to maintain a healthy credit score.
Alternatives to Cash Advances: Before resorting to a cash advance, explore other borrowing options that may be more cost-effective. These alternatives include personal loans (which often have lower interest rates), balance transfers to a 0% APR credit card, using a 0% APR credit card for purchases (if the need is for something you can buy), or borrowing from friends or family. Carefully consider these options to minimize borrowing costs and avoid the high fees and interest associated with cash advances.
Rewards on Cash Advances: Generally, credit cards do not offer rewards on cash advances. The high fees and interest rates associated with cash advances already make them a costly option, and the lack of rewards further diminishes their value. Don't expect to earn cash back, points, or miles on any cash advance transactions.
Repayment Allocation: When you make a payment to your credit card, the card issuer typically applies the payment to balances with lower APRs first. This means that if you have both purchase and cash advance balances, your payment might be applied to the purchase balance before the cash advance balance. As a result, the higher-interest cash advance balance may accrue interest for a longer period. To minimize this, consider making extra payments specifically directed towards the cash advance balance. Contact your card issuer to confirm their payment allocation policy.
Foreign Transaction Fees: Foreign transaction fees are charges levied when you use your credit card for transactions in a foreign country. These fees typically apply to cash advances as well, making them an even more expensive option when traveling internationally. Avoid using cash advances abroad due to these fees and potentially higher APRs. Consider using a travel credit card with no foreign transaction fees or using your debit card for ATM withdrawals (while being mindful of ATM fees).
Security Features: Credit cards often come with security features such as fraud monitoring, purchase protection, and travel insurance. While these features are valuable for regular purchases, they are less relevant when considering cash advances. When choosing a credit card for cash advances, prioritize low fees and APRs over security features, as the primary goal is to minimize the cost of borrowing.
Issuer Reputation & Customer Service: The reputation of the credit card issuer and the quality of their customer service are important factors to consider. Choose a reputable issuer with responsive customer service, as this can be helpful if you have any questions or issues regarding your account, such as disputes over fees or incorrect charges. Research customer reviews and ratings to assess the issuer's reliability and responsiveness.
Fees and Charges: It's crucial to understand all the fees and charges associated with a credit card before applying. This includes annual fees, late payment fees, over-limit fees, and balance transfer fees, in addition to cash advance fees and APRs. Carefully review the fee schedule provided by the issuer to avoid any surprises and to make an informed decision about whether the card is right for you.
Frequently Asked Questions
What is a cash advance on a credit card? A cash advance allows you to borrow cash from your credit card, typically through an ATM or bank.
Are cash advances expensive? Yes, they usually have high fees and interest rates, often higher than regular purchases.
Do cash advances affect my credit score? Indirectly, yes. They can increase your credit utilization ratio, potentially lowering your credit score.
Is there a grace period for cash advances? No, interest typically starts accruing immediately on cash advances.
Can I earn rewards on cash advances? Generally, no. Most credit cards don't offer rewards on cash advances.
What are the alternatives to cash advances? Personal loans, balance transfers, and borrowing from friends/family are often better options.
How is my payment applied to cash advance balances? Typically, payments are applied to lower-APR balances first, potentially leaving the cash advance balance to accrue interest longer.
Do foreign transaction fees apply to cash advances? Yes, foreign transaction fees can apply when taking out cash advances in a foreign country.
Conclusion
Navigating the world of credit card cash advances requires careful consideration. Remember that cash advances are generally a costly way to borrow money due to high fees and interest rates. Prioritize finding a card with the lowest possible cash advance fee and APR, and always explore alternative borrowing options before resorting to a cash advance. By understanding the terms and conditions associated with cash advances, you can make informed decisions and potentially avoid unnecessary expenses.