What is a cash advance?

What is a cash advance?

Think of a cash advance as a very expensive, short-term loan using your credit card.

Normally, you use your credit card to buy something, like a cup of coffee or your weekly grocery shop. You buy it now but pay it off later. It's credit, or borrowed money.

And if you take too long to pay it off you get charged interest too.

A cash advance is when you use your credit card to withdraw actual money. Let's say you go to the ATM and use your credit card to withdraw $200 cash. That's a cash advance transaction.

You're effectively borrowing money via your credit card. You're allowed to do it, but it's expensive.

What are cash advance transactions?

1. ATM withdrawals. This is the most common cash advance transaction.
2. Gambling. Buying a scratchie or lottery ticket on your credit card is cash advance transactions. Using credit cards for online gambling or casinos is prohibited by law.
3. BPAY. Many bill payments via BPAY are classed as cash advances, but it does depend on the card provider.
4. Account transfers. When you use your credit card account to transfer funds to another account, whether your own or someone else's, your card issuer will view it as a cash advance.
5. Money transfers. If you purchase foreign currency or traveller's cheques with a credit card, these cash transactions will be flagged as cash advances.
6. Stored value cards. While most banks and credit card companies are fine if you purchase a gift card with a credit card, loading up a prepaid debit card with a credit card will likely be considered a cash advance transaction.

Why credit card cash advances are expensive

When you make a cash advance transaction on a credit card 2 things happen:

1. You get charged interest right away. Normal credit card spending gives you up 44 or even 55 days interest free from the start of each statement period. But with a cash advance you get charged interest immediately. And at a higher rate too.
2. You get charged a cash advance transaction fee. Every cash advance transaction incurs a cash advance transaction fee. It's usually around 3% or 3.5% of the total amount.

Example: the true cost of a cash advance

Let's say you're out one night and you don't have any money in your debit card. But you need to get out some cash to repay your mate for food and drinks.

You withdraw $200 from an ATM using your credit card. Later in the night you pull out a further $50 just in case. It's a big night.

14 days later at the end of the month you check your credit card statement and see the following charges:

• Transaction 1. You're charged a 3% cash advance fee on the $200 withdrawal. That's $6.
• Transaction 2. You're charged a cash advance fee of $1.50 on the $50 withdrawal.
• Interest charges (total). Your card has a 21.99% cash advance rate, which is charged on the $250 each day. Over 14 days that amounts to $2.10 in interest charges.
• Total cash advance cost. $9.60 (assuming you repay the balance immediately).

What are some alternatives to cash advances?

If you need money quickly in an emergency a credit card cash advance may be the easiest option but potentially very expensive.

Other options include personal loans and buy now pay later. Every option has benefits and drawbacks, depending on how quickly you need the money and how much you need.

Generally, buy now pay later costs little if you pay off the instalments on time. A personal loan is probably the cheapest way to borrower thousands of dollars, but you can't borrow $500 this way. Cash advances get more expensive the bigger the transaction.

• Personal loan. A personal loan may work out cheaper if you need a large amount of money. But you can't get a personal loan instantly and you can't borrow a small amount (personal loans start from $2,000). And there may be monthly fees plus an application fee.
• Buy now pay later. If you pay off your buy now pay later spending on time there may be no charges. If you miss payments you'll get charged a late fee. And some BNPL providers charge a monthly fee of around $10.
• Cash advance. A cash advance is quick and easy because there's no application process or credit checks. And for smaller, one-off expenses it might not cost too much if you pay it off soon. But the bigger the transaction the more expensive. A 3% cash advance fee on $50 is $1.50. On $500 it's $15. On $1,000 you'd pay $30.

Frequently asked questions

• Is a cash advance bad for your credit?

  Taking out cash advances on your card won't hurt your credit score if you repay them like normal card spending. But if you fall behind on your card repayments or miss payments you could hurt your credit score.

• How much can I withdraw as a cash advance?

  The amount of money you can withdraw from an ATM as a cash advance depends on your card's credit limit and your daily card limit.

  If you have a credit limit of $2,000 and a balance of $0, you could theoretically take out a $2,000 cash advance. But if your card has a daily withdrawal limit of $1,000 you could only make a $1,000 withdrawal.

• Can you avoid cash advance fees?

  The only way to avoid a cash advance fee is to avoid or minimise making cash advance transactions.Checking the fine print on your credit card's terms and conditions is a good idea if you're not sure if a specific transaction counts as a cash advance.

  If you think a transaction on your card is incorrectly classed as a cash advance you should contact your credit card provider.

• How fast should I repay a cash advance?

  As fast as possible. Interest is charged every day on a cash advance from the day you make the transaction. And it can quickly add up.

• Should I avoid cash advances?

  You should try to use a debit card to withdraw cash wherever possible as there are no fees. A cash advance is best used in an absolute emergency.

Written by

Richard Whitten

Senior Money Editor

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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

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