## What is a cash advance rate?

When banks allow credit card holders to borrow cash, they often charge a higher rate of interest than they do for purchases. This is called the cash advance rate. Usually, banks also charge a fee for each cash advance, and the interest accrues from the moment the money is withdrawn.

## Deeper definition

Obtaining a cash advance from a credit card is a lot like getting a loan because the credit card company is essentially lending the person money, allowing him or her to buy things on credit, with the cardholder paying for those items later.

To be sure, a credit card’s cash advance rate is typically higher than the standard interest rate, and can range from 20 percent to 25 percent.

People can get cash advances by using their card at an ATM or by using convenience checks from the credit card issuer. In both cases, they’ll pay the cash advance rate as opposed to the standard interest rate for their borrowing.

This cash advance rate usually kicks in as soon as the person receives the money. It differs from making a purchase with a credit card, in which the person typically has a grace period that allows him or her to avoid interest if the holder pays the amount off before the credit card payment deadline.

If a person is using his or her card for purchases as well as cash advances, the person will pay the standard rate for purchases and the cash advance rate for money received.

If a person is carrying a balance, the credit card company might apply any payments made toward the lower interest balance first. This means it will apply payments toward purchases first and might not start paying down the cash advance until the cardholder has paid off your purchase balance.

## Cash advance rate example

Audrey took out a cash advance at her bank’s ATM to pay admission to a summer art festival, where she also bought two paintings. When she got her card statement, she found she had paid a cash advance rate of 20 percent, about 7 percent higher than the regular rate. Many of the artists took credit cards, so next time, she’ll simply pay them with the card and get the lower rate.

Carrying a balance on your credit card? Find out how long it will take to pay back using this calculator.

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