What is a Credit Card Cash Advance?

January 07, 2024

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A credit card cash advance is the withdrawal of the cash from your credit card account. In simple words, when a credit card user utilises the credit card in an ATM to withdraw cash, that is called a Credit card cash advance. Cash advance requires users to use their credit card, the same as a debit card in an ATM. The amount of cash withdrawn from the credit card is proportional to the credit limit provided to the customer.

Credit card cash advance generally works as borrowing funds from the credit card company. In the cash advance process, a customer borrows money against the credit card to get cash. Credit card cash advance is a handy feature for customers. However, it comes with some cost or a limit on the cash amount one can borrow.

Cash Advance Fee

The bank charges some amount whenever a customer makes a credit card cash advance. These charges can be considered as cash advance fees. Cash advance fee can be a fixed amount or can be a percentage amount of the advance cash. The general range of cash advance fees is 2.5% to 3% of the advance amount. The fixed amount ranges between Rs. 300 to Rs. 200. These two charges are not the only fees that a credit card company levies on the cash withdrawal.

Credit card cash advance doesn’t fall under the credit card grace period. This doesn’t allow cash withdrawals to fall under the credit card grace period. Credit card cash advance includes interest charges from the date of cash withdrawal. The general interest rates of credit card cash advances range between 1.5% to 3.5% of the withdrawal amount.

How Does a Cash Advance Work?

As mentioned above, a cash advance is a cash withdrawal made by a customer via a credit card. To avail of a cash advance, one normally needs a credit card received from the bank. The cycle starts when the customer visits an ATM or bank office to make a cash withdrawal. This cash sum is generally a percentage of the credit limit of the customer. Cash advances often consist of higher interest rates compared to online credit card purchases. Credit card-providing financial institution earns profit via interest rates, cash advance fees, and annual charges applicable on the cash advance. 

Repayment of the cash advance can be done similarly to the credit card bill payment. At the time of repayment, the customer can pay the bill with the addition of interest charges, cash advance fees and remaining credit card charges.

Is it Good to Use a Credit Card for Cash Advance?

Cash advance is a feature that is highly acclaimed when it comes to an urgent need for cash. Apart from that factor, credit card cash advances could take a heavy toll on your pocket. It seems like a quick to fill the pockets with cash. However, withdrawing cash with a credit card can be more expensive than making an online purchase. Cash advances can only be counted as a beneficial deal if we ignore the interest rates and cash advance fees.

Here is a quick example of a cash advance situation:

Suppose you need to make a cash withdrawal of your credit card of Rs. 20000. Per day interest that is applicable on your cash advance transaction is 2.5% with a cash advance fee of Rs. 500 and 3% of your transaction amount. Now, you decide to pay the amount back by the 7th day of withdrawal. This adds Rs. 500 interest per day for 7 days with Rs. 600 cash advance fixed charge and Rs. 500 as your 2.5% cash advance fee. Note that interest starts adding up from the date of cash withdrawal. Now, on the 7th day, you need to pay additional Rs. 5100 to your bank, along with the withdrawn cash amount.

Points to Remember Regarding Cash Advances

  • Use the cash advance in extreme emergencies only. As cash advance will charge you a lot of extra amount, it is better not to withdraw cash with a credit card within regular intervals.
  • Withdraw only the needed amount with a credit card. Don’t exceed your desired cash limit in cash advance.
  • Pay the credit card provider as soon as possible. There will be interest charges for every day from the day of the cash advance.
  • Always read your credit card agreement carefully before owning the credit card. All the interest charges, along with cash advance fees and policies, can be found written in the agreement.
  • Try not to purchase anything while you are in the cash advance period. For the above-mentioned reasons, avoid credit card purchases as much as you can.
  • Credit card companies charge some extra charges in the case of a cash advance. These charges include interest rates, cash advance percentage fees and cash advance fixed charges.
  • Always check your cash advance limit before making any transaction regarding cash advance. Generally, the cash advance limit is lower than that of the credit limit.
  • Try to use a zero-balance credit card. Banks and credit card companies provide multiple types of balances on the credit card. Zero-balance cards can prove to be more beneficial than the rest of the credit card cash advance.
With a background in journalism and mass communications, Rishabh might be clueless about his plans for the evening, but he clearly knows what to write. A proud cinephile, Rishabh makes the perfect choice to discuss any movie with. Poetry holds a special place in his heart, which mingles well with his wanderlust personality. While he physically exists in India, his heart beats for the red part of Merseyside. Rishabh educates and empowers readers towards financial success at Urban Money.

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