Cash advance fee

What is a cash advance fee?

A cash advance fee is a charge by the bank for using a credit card to obtain cash. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. Banks may limit the amount that can be charged to a specific dollar total, and they may deduct the fee directly from the cash advance at the time the money is received or post the fee to your bill on the day you received the advance.

The cost of a cash advance is also higher because there is generally no grace period. Interest accrues from the moment the money is withdrawn.

Deeper definition

Cash advances are a type of short-term loan that you take against your own credit limit to pay for something in the immediate future. The difference between a cash advance, which is against credit, and another short-term loan, which is typically issued against equity, is the interest rate and associated fees for taking the advance.

Credit card companies want to make sure that they’re going to get their money back when you take out cash against your credit line.

If there weren’t high fees and penalties associated with cash advances, the situation would be beneficial for consumers but detrimental to credit card companies.

Cash advance fee example

Getting a cash advance is as simple as walking up to an ATM and swiping your credit card instead of your debit card. While this seems like an easy solution to an unexpected expense somewhere that doesn’t take credit cards, the penalties associated with a cash advance are not always worth the immediate benefit.

For example, the fee may be expressed as “2%/$10.” This means that the cash advance fee will be the greater of 2 percent of the cash advance amount or $10.

Additionally, many cards cap your withdrawal amount at a few hundred dollars and don’t allow you to take your full credit limit in cash. An alternative form of savings is a much better option for emergencies.

Is a cash advance your best option for access to funds? Learn more about the choices you have for making this decision.