What is a credit card cash advance?

A credit card cash advance is a short-term loan, where you withdraw cash from your credit card account. However, unlike regular purchases on your credit card, you pay a cash advance fee as well as a higher interest rate than your annual percentage rate (APR) for regular purchases. With a cash advance, you also aren’t granted an interest-free grace period.

Cash advances come with several additional fees, which aren’t associated with regular credit card purchases.

• Cash advance fee: when you take money out, you’re charged a cash advance fee, which is essentially a service charge. This fee can be a flat fee (usually about $5 in Canada or up to $7.50 abroad) or a percentage of the cash advance.
• ATM fee: if you take money out of an ATM as a cash advance, you will be subject to any ATM fees associated with the transaction in addition to the cash advance fee.
• Higher APR: a cash advance APR is typically higher than that of regular credit card purchase —and can reach as high as 29.99%. Unlike normal purchases, cash advances don’t have an interest-free grace period and start to accrue interest immediately from the day of the transaction. And if you only make the minimum payment on your credit card, your lower interest balances may be paid off before your high-interest balances, resulting in higher monthly interest payments for a while. Details about payment allocation is are included in your credit card agreement.

If you’re thinking about taking out a cash advance, there are a few questions you should ask yourself:

• Can I access this money elsewhere? Cash advances really should be treated as a last resort. Credit card cash advances, in particular, can become expensive quickly, so you should consider getting cash elsewhere first.
• Can I pay it back quickly? Since cash advances start to accrue interest from the day of the transaction, interest fees can start to accumulate quickly. If you decide to get a cash advance, you should try to pay it back as soon as possible.
• How much money do I need to borrow? If you do need to take out a cash advance, only take out the amount of money that you absolutely need. If you need money for non-emergency situations, consider other lower interest means of getting a loan, such as a bank loan.

The main benefit of a credit card cash advance is convenience.

If you’re really strapped for cash, you can withdraw cash from a bank or ATM right away. However, cash advances aren’t treated the same way as a regular credit card purchase and can become expensive quickly.

Credit card cash advances should be used as a last resort. Before taking out a cash advance, consider using the following to get more cash:

Not all credit cards charge additional interest for a cash advance compared to normal purchases. If you think you’ll need to use the credit card cash advance service frequently, consider choosing a credit card with a low cash advance APR, such as:

1. HBSC+ Rewards Mastercard: 11.99% APR on purchases and cash advances with a $25 annual fee.

2. CIBC Select Visa: 13.99% APR on purchases and cash advances with a $29 annual fee.

You can get a credit card cash advance at your financial institution or at any ATM the same way you would make a withdrawal using your debit card. Additionally, if you’ve been given credit card cheques from your credit card company, you can also name yourself as the payee and deposit the cheque in your bank account.

A cash advance should only be used as a last resort option. If you do need to use one, try to:

• Take out only as much money as you absolutely need.
• Pay the money back as quickly as possible to avoid steep interest rates.

Overall, be cautious. Cash advances can be a band-aid solution that can lead to more credit card debt if not paid off in a timely manner.