What is a Cash Advance?
What is a Cash Advance (Credit Cards)?
A cash advance is when you use your credit card to get money from an ATM, just like a debit card. It's like borrowing cash from your credit card company. Usually, a cash advance comes with fees and higher interest rates.
Remember: taking a cash advance often means you start paying interest right away, and the interest rate might be higher than what you'd pay for regular purchases. So, it's something you might want to avoid unless you really need it.
3 things to know about Cash Advances
1. High Interest Rates: Cash advances can carry a high-interest rate compared to regular credit card transactions. The interest charges begin accruing immediately from the day the cash advance is taken and there is no interest-free period as there is with purchases.
2. Extra Fees: Apart from interest, the bank or credit card issuer may charge a fee for a cash advance, usually a percentage of the amount advanced. For instance, if you withdraw $200 with an advance fee of 5%, you'll end up paying an extra $10.
3. No Reward Points: Cash advances generally do not qualify for reward points, cash back, or any other type of reward that your credit card may offer for other types of transactions. This means taking a cash advance will not help you benefit from different reward programs offered by your credit card.
Do Cash Advances impact credit score?
A cash advance itself does not directly lower your credit score. However, it can indirectly impact your credit score in a few ways:
1. Higher Credit Utilization: If you take a sizable cash advance, it can raise your credit utilization ratio, which is the ratio of your credit card balance to your credit limit. Because a lower ratio is better for your credit score, a large cash advance could negatively impact your score. [1]
2. Late Payments: Cash advances begin accumulating interest immediately, with no grace period like with typical credit card purchases. The higher interest rates and fees associated with cash advances could make it harder for you to repay your debt, and late or missed payments can significantly lower your credit score.
3. Multiple Cash Advances: If you use for multiple cash advances, lenders might see you as a riskier borrower. This perception can result in reduced opportunities for loans and increased interest rates.
Thus, while getting a cash advance doesn’t directly lower your credit score, it can lead to certain behaviors that do reduce your score. Always borrow responsibly and pay careful attention to your credit utilization rate and payment timing.
Citations and links
[1] https://www.myfico.com/credit-education/whats-in-your-credit-score
[2] https://www.consumerfinance.gov/consumer-tools/payday-loans/
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