Credit Cards Help and Advice

Know The Facts Before Getting A Cash Advance With Your Credit Card

What is a Cash Advance With Your Credit Card?

Credit cards are convenient to use, but every once in a while we find ourselves in a situation where it is not possible to pay through a card. A broken-down bike, a visit to a local grocery shop, and an emergency cab ride are situations where plastic money proves useless. In situations like these and many others, hard cash is needed.

But what if you don’t have the required funds, not in your wallet and not in your account? What do you do then?

Cash advance is one way of getting some fresh, crisp currency notes in your hand. All it takes is a trip to the nearest ATM, swiping of the card, and punching of the PIN and the amount, and the magical dispensing machine will save the day for you.

Or does it? Sure, cash advance is pretty easy, but won’t you be paying a heavy price later?

Read on to know if cash advance is a good option for you.

What is cash advance?

A cash advance is a short-term loan taken against the credit card. While the normal purchasing you do with your card is also a short-term loan, in cash advance you take a loan in cash.

There is a limit to how much you can draw, much like there is a limit to how much you can spend using your credit card. The maximum amount available in cash is always less than the maximum credit limit. Usually, only a small percentage of the maximum limit is available for withdrawal through the ATM machine. In other words, you are not likely to get hold of a lot of cash through your credit card in case of an emergency.

Cash advance is costly

Getting cash through a credit card is easy, but it is a very costly way of getting cash. Different fees are levied over cash advance.

  • Cash Advance Fee – Every time you take a cash advance, you pay a fee in the range of 3% – 5% of the amount borrowed. On a cash advance of INR 1000, you pay INR 40, if the fee is 4%, just to withdraw the cash.
  • Interest – The interest on cash advance hurts you in two ways. One, it is much higher than the normal credit card interest rate. Second, the interest starts accruing from the day you make the withdrawal; that is there is no grace period.

Take stock of your finances—and evaluate other options

Cash advances are extremely expensive because of the associated costs. One should take a cash advance only in extreme emergencies, even then after exhausting all other options.

Some other options to consider when facing a cash crisis are shared ahead. These options are far from ideal, but not one of them is likely to prove as costly as a cash advance:

  • Personal Loan – The poorer the credit history, the more the interest rate charged on a personal loan. However, even then the interest rate on a personal loan is lower than on a cash advance.
  • Borrow money from family or friends – You can save money that you pay as interest on a loan if you can bring yourself to ask someone close to lend you a helping hand
  • Overdrawing your checking account – Your bank will charge you a steep fee if you use your debit card to pay for something when there is not enough money in the account. However, in comparison to a cash advance, this is a cheaper option. Not all saving accounts allow overdrawing though, so check the terms of your saving account first.

A cash advance is a mean to get hold of a short-term loan. Given the attached costs, it is also a very costly way of getting some much-needed cash. Explore other options before deciding to take a cash advance. More importantly, take a hard look at your financial condition, for it can’t be good if you had to take a cash advance to meet a financial emergency—and make amends.


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