Understanding what cash advance interest rates are

If you need money in a hurry, one of the easiest options is to use your credit card to withdraw notes from an ATM. This convenience comes at a hefty price, and it’s in your best interest to repay the debt as soon as possible to avoid the burden of compound interest. Read this quick guide to find out how interest works on cash advances and best practices for managing this kind of transaction.

What is a cash advance?

Credit card providers tend to charge different interest rates for purchases and cash advances, and the following transactions qualify as cash advances:

• Cash withdrawals. You can use your credit card to withdraw cash from an ATM, at a branch, or as cash out via EFTPOS, and your card provider will consider all such transactions as cash advances. This includes buying foreign currency or traveller's cheques as well.
• Gift cards and prepaid cards. As the money you load onto a gift card or prepaid card is equivalent to cash, these transactions are usually considered as cash advances when you pay with a credit card.
• Gambling. If you use your credit card to pay for gambling transactions, prepare to pay your card’s cash advance rate. The cash advance rate can also apply on expenses incurred in paying for food and beverage in gambling establishments.
• Unpaid balance transfer debt. If you get a credit card with a promotional balance transfer offer, there’s a good chance that outstanding transferred balances at the end of the introductory period will start attracting the card’s cash advance rate. Learn more about balance transfer rates.

Low cash advance credit cards comparison

What to consider before making a cash advance

Cash advances aren't the same as purchases. If you’re planning to use your card for a cash advance, here’s what you need to know:

• Minimum withdrawals. While you can use your credit card to pay for the smallest possible purchases, when it comes to withdrawing cash you may have to deal with a minimum withdrawal amount of $20 or more.
• Maximum limits. If you think you can use your credit card to withdraw cash up to your card’s available credit limit, think again. It is not uncommon for credit cards to have daily, weekly, and monthly cash advance limits in place. Maximum daily cash advance limits of less than $500 are rather common.
• Cash advances paid first. Your credit card provider applies your payments toward balances that attract the highest interest. Since cash advances tend to attract higher interest than purchases, you can be certain that your repayments will go towards reducing your cash advance balance first.
• High interest rate. Interest for cash advances is normally 20% p.a. or more, which is considerably higher than the purchase rate of around 13% p.a. that some low rate credit cards charge. This makes cash advances a rather expensive form of credit, and if you’re not in a hurry, getting a personal loan might be a better option.
• No interest-free days. Most credit cards give cardholders the ability to make use of interest-free days if they pay their closing balances in full each month. These interest-free days apply only on purchases, and not on cash advances. When you use your card for a cash advance, it starts attracting interest from the word go.
• Cash advance fees. In addition to paying a high cash advance rate, you could also have to pay a cash advance fee, which typically varies in between 1.5% to 4% or a flat fee of $2 - $4.
• Ineligible transaction. Cash advance transactions are not considered "eligible" when it comes to earning rewards points or meeting a minimum spend requirement.

While credit card cash advances can give you quick access to cash, the costs involved usually outweigh the benefits. Make sure you understand what is considered a cash advance and the interest rates and fees that apply to weigh up whether it's worth it.

Commonly asked questions about cash advances

• What do I do once I've made a cash advance?

  What you can do is to repay your cash advance as soon as you can afford it. People who only need a cash advance for a few days until payday should jump to their online credit card account and pay their cash advance as soon as they receive their pay.

• Do credit card providers consider bill payments as cash advances or purchases?

  This essentially depends on any given biller’s setup with BPAY. If your biller accepts credit cards as a form of payment, your card provider would process your transaction as a purchase. If the biller does not accept payments via credit cards, your card provider might still let you go through with the payment, and it would process such a transaction as a cash advance.

• If I use my credit card to withdraw cash from an ATM, would I have to pay ATM fees as well?

  You won’t have to pay ATM fees if you use an ATM that belongs to your financial institution or its ATM partner network. In all other cases, you would have to pay ATM fees.