Is It Ever a Good Idea to Get a Cash Advance on Your Credit Card?


Key points

  • Credit card cash advances come with high fees and high-interest rates.
  • Usually, you should try to avoid a cash advance.
  • There may be some circumstances where taking one out isn’t the worst idea, such as if you’re using it as an alternative to a costly payday loan for an emergency expense.

Most of the time when you use your credit cards, you’ll be charging purchases. But there is actually a way to get cash from your credit card: you can do this by taking a cash advance. Often, this means simply going to the ATM or the bank and requesting one.

Taking out a cash advance may seem like a good solution if you have an essential expense that you cannot charge on your card and that you don’t have the money to pay for. But, in reality, there are serious financial downsides to doing so.

This doesn’t mean you should never take a cash advance — but before you do, you should seriously think about whether that’s the right move.

There are some good reasons to avoid cash advances

In general, cash advances should be avoided because they can be a very expensive way to get money.

You’ll usually be charged an upfront fee when you take a cash advance, which could range from around 3% to 5% of the borrowed amount. The interest rate may be higher on a cash advance than your standard card rate too, and you will usually begin accruing interest right away. This is different from when you charge items on a credit card, as you don’t have to pay interest on charged items if you pay your balance in full before your grace period.

You may also not be able to borrow that much with a cash advance, as there’s often a lower limit that applies. For example, if you have a $10,000 credit line, you may only be eligible to take a cash advance of up to $4,000 or whatever your card issuer sets the limit as.

So, since a cash advance is going to cost you more and be more restrictive than just charging something on your card, you typically should not do it.

Here’s when you might want to consider taking one anyway

While a cash advance should always be avoided in a perfect world, the reality is that sometimes people get into money jams and need help getting out of them. And a cash advance could be one way to do that if the alternatives will cost you more.

Say, for example, you need $500 to fix your car today and the mechanic won’t take a credit card. If you have no other means to pay for the car repairs and otherwise you won’t be able to get to work and would lose your job, then a cash advance could be an option if you have plans to pay the money back quickly.

Or if you were considering a payday loan to pay an essential expense such as covering your rent until your paycheck comes, a cash advance may be cheaper.

Basically, as these examples are designed to illustrate, if you are backed into a corner with no other way to borrow and the consequences of not taking a cash advance would be greater than the costs of taking on, you do have this option available. If you exercise it, though, you’ll want to make a plan for paying back the money ASAP and a plan to ensure you don’t need to do this again in the future — such as saving up an emergency fund.

The bottom line is, that cash advances are a financial tool that’s available to you. But since they are such costly ones, save them for dire emergencies and do what you can to make sure you don’t find yourself in that situation.