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Important things to know before getting a cash advance on your credit card

Information verified correct on December 6th, 2016

Everything you need to know about credit card cash advances.

A cash advance allows you to withdraw cash or a cash equivalent using your credit card. Cash advance transactions include getting money out at an ATM, buying gift cards, foreign currency and even gambling charges. Some credit card companies also consider utility bill payments and government charges as “cash advance transactions”.

While there are times when it’s convenient to use your credit card for a cash advance, it can be expensive. These transactions typically attract the highest interest rates and also come with a cash advance fee worth 2-4% of the total transaction. So unless you have a low cash advance rate credit card, you’ll often end up paying a lot of money for this service.

Here, we look at the key details of cash advances, what you should consider before using your card for one, and other options you can look into to avoid or reduce the cost of getting a cash advance on your credit card.

Which transactions are considered as cash advances?

Depending on your credit card, a cash advance could include any or all of the following types of transactions:

  • ATM withdrawals. Getting cash from an ATM using your credit card is the most common type of cash advance transaction.
  • Balance transfers. Some balance transfer credit cards revert to the cash advance rate. Similarly, if you want to move a debt to your existing credit card, the transfer may be deemed as a “cash advance” and attract this interest rate as well as a fee.
  • Gambling transactions. Whether it’s online or at the casino, gambling purchases are often considered a “cash equivalent” transaction that attracts cash advance rates and fees. This includes buying credit, chips, lottery tickets and scratchies, as well as placing bets at sporting events or online.
  • Foreign currency and traveller’s cheques. Foreign notes, coins and traveller’s cheques are a form of cash, which means purchasing them with your credit card is considered a cash advance.
  • Paying for gift cards or prepaid cards. Using your credit card to buy a gift card or prepaid card is usually classified as a cash advance. This also applies if you use your credit card to reload prepaid credit, debit or store cards.
  • Online transfers. An online transfer from your credit account to your transaction account is a cash advance, as the “credit” from your card is being converted into cash.
  • Utilities. Using your credit card to pay utility bills over the counter at a bank or a post office is often classified as a cash advance. Note that some credit card companies will consider BPAY payments as purchases, giving you an alternative option.
  • Government charges. If you pay a government fee, such as your ATO bill, with a credit card, it could be processed as a cash advance.

Other transactions that may be processed as cash advances

In some cases, payments made with your credit card may be processed as cash advances even if they would normally be deemed as purchases. This usually happens with merchants that offer gambling purchases, such as gambling vendors, news agencies that sell lottery tickets, or casinos.

In these places, it’s possible that making a regular purchase (such as paying for a drink at the casino) could be processed as a cash advance. If you’re planning on using your credit card with a merchant that provides these types of services, you should check with your credit card provider or the venue to find out if your payment will be considered a cash advance.

Key considerations before using your credit card to make a cash advance

These costs and consequences could make you think twice about using your credit card to get cash or make a cash advance purchase.

  • Higher rate of interest. Cash advance interest rates are higher than purchase interest rates. Compare low cash advance rate credit cards to avoid high interest charges.
  • Attracts an additional fee. The cash advance fee is usually the greater of $2-$4 or 2-4% of the total transaction cost. So if you had a card that charged the greater of $3 or 3% and withdrew $1,000 from an ATM, you would have to pay a fee of $30.
  • No interest-free days. Cash advances accrue interest from the day the transaction is made.
  • No points. Cash advance transactions are ineligible to earn rewards or frequent flyer points.
  • Credit card payment allocation. Credit card repayments are allocated to the debt that attracts the highest rate of interest first. This means if you’re also carrying a balance from purchases or a balance transfer, the cash advance transactions will be paid back first when you make credit card repayments.
  • ATM fees. ATM fees may also be charged to your credit card when you withdraw cash. This will add to the cash advance balance and the associated fees and interest charges.
  • Foreign currency transaction fees. If you use your credit card to get cash out at an overseas ATM, you could also be charged for currency conversion, adding to the overall cost of the cash advance.

How much could a cash advance cost?

To put the cost of cash advances in perspective, let’s say you’re at a festival and want to use your credit card to get cash out for purchases. Your card applies the following fees and charges:

  • ATM withdrawal fee: $2
  • Cash advance fee: The greater of $3 or 3% of the total transaction cost.
  • Cash advance interest rate: 21.99% p.a.

If you withdrew $500 on the first day of the festival, your initial costs would be:

  • ATM withdrawal fee: $2
  • Cash advance fee: $15
  • Total: $517

This transaction would start accruing interest at the rate of 21.99% p.a. from the day you made the withdrawal. If you didn’t make a payment off your credit card for 30 days, your interest charges would be approximately $9.31.

That means, over one month, you would have paid $26.31 for using your credit card to get $500 out of an ATM. If you then only made minimum payments off this card, it would take you 2 years and 6 months to clear the debt, costing a total of $175 in interest.

How much does a cash advance cost?

Compare credit cards with low cash advance rates

Rates last updated December 6th, 2016.

ME Bank frank Credit Card

Interest rate changed from 9.99% p.a. to 11.99% p.a. on purchases, balance transfers and cash advanc

September 19th, 2016

View latest updates

Jonathan Choi Jonathan
Cash advance rate (p.a.) Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. 11.99% p.a. $0 p.a. Go to site More info

What are some alternatives to a credit card cash advance?

These options can get you cash quickly.

  • Short-term loans. If you urgently need cash, you may want to consider a short-term cash loan (also known as a “payday loan”). Some of these lenders have application turnaround times of 30 minutes. Note that the interest rates for these loans are often similar to those of credit card cash advance rates, so you may still want to compare your options before deciding on what will be affordable for you.
  • Personal loan. If you have the time, a personal loan is usually more affordable than a credit card cash advance or short-term loan. While some financial institutions may offer same-day personal loan approval, it usually takes several days or longer for a personal loan application to be processed. When approved, the funds will be deposited into your transaction account and can then be withdrawn from an ATM without attracting cash advance fees.
  • Debit card. If you need to get cash out of an ATM, the most affordable option is to use a debit card that’s linked to your transaction account. Many of these cards offer fee-free withdrawals when you use the bank’s associated network, allowing you to get the cash you need at no extra cost. What’s more, if you’re travelling, you could also consider a prepaid travel money card to avoid foreign currency conversion fees and other ATM charges.

It’s worth noting that personal loan and payday loan application requirements are different. You only need to be working to apply for some payday loans, and you can apply for a payday loan if you have bad credit.

If you know you will need some extra cash in the future, you may be able to plan ahead and apply for an affordable personal loan or a personal overdraft. It can take a little longer to apply for one of these loans, but the interest rates are generally lower than those of credit cards.

With high rates and fees, credit card cash advances are an expensive option in most circumstances. But if you really want to use a credit card for cash withdrawals or other cash advance transactions, make sure you use a low cash advance rate credit card and consider other options so that you can keep your costs to a minimum.

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2 Responses to Important things to know before getting a cash advance on your credit card

  1. Default Gravatar
    phil | November 20, 2015

    Today i received advice from ANZ visa that as of 27/2/16 there is a redefinition of cash advances to include payment of utility bills. Which if any credit cards do not define such payments as cash advances?

    • Staff
      Ally | November 20, 2015

      Hi Phil,

      Thanks for your inquiry.

      Kindly note that finder.com.au is an online comparison service and does not represent any product issuer.

      To get a more precise answer to your question, it would be best to get in touch with your preferred bank for direct assistance as their terms and conditions vary from one another.

      Cheers,
      Ally

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