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Understanding credit card cash advances

By ATB Financial 9 December 2020 5 min read

Can you withdraw cash from a credit card? Yes. It’s called a “cash advance”, and it’s an option for most cardholders with major credit cards.

Should you withdraw cash from a credit card? The answer to that question is a little more complicated. Let’s take a closer look at how cash advances work, the different types of cash advances and some alternatives to consider if you’re thinking about taking a cash advance.

How cash advances work

Basically, taking a cash advance is using your credit card to “buy” cash or other currency. While they might feel like just another source of money at your disposal, cash advances are an expensive form of credit that generally come with fewer protections and greater penalties than regular credit card purchases.

There are some situations where taking a cash advance is unavoidable, but it’s important to be aware of how much a cash advance will cost you before you make the transaction.

Cash advance fees, interest and limits

Cash advances, in general, are subject to a cash advance transaction fee, which differs from card to card and sometimes also differs between types of cash advance. This means that every time you perform any transaction that counts as a cash advance (more on this below), you may be charged a fee in addition to the amount of the advance and any interest that amount may accrue.

For most credit cards, the interest rate on cash advances is usually higher than the rate on regular purchases. Interest on cash advances also starts accruing immediately. While regular credit purchases often have an interest-free grace period (for example, 21 days), grace periods do not apply to cash advances.

Limits on cash advance amounts differ from card to card.

If you’re not sure what fees, interest rates, limits or protections apply to cash advances on your credit card, refer to your terms and conditions (which should be available online), or call your bank or credit card company. You can find all of ATB’s Mastercard® rates and fees here.

It’s also important to keep in mind that when you use a cash advance, you will not earn the same rewards or points on your purchase like you would in a regular transaction. What’s more, you won’t be covered by the same protections offered by credit card providers.

If you need to use cash advances frequently, consider applying for a separate credit card with the lowest cash advance fees and interest rates you can find.

Cash advances are a necessity for some, for example if you are purchasing cryptocurrency or are sending money abroad to family. If this is the case for you, always make sure that you are paying the funds back as soon as possible so that you can limit high interest charges.

Cash advances and your credit score

Cash advances don’t impact your credit score differently than regular credit card purchases. However, the additional fees and interest that cash advances are subject to sometimes catch card holders off-guard and lead to situations of credit card delinquency, which negatively affect credit score. If you’ve taken a cash advance recently, check your account standing to make sure you’ve made the appropriate minimum payments so that your credit score won’t be affected.

Types of cash advances

Sometimes a cash advance transaction is obvious, but sometimes there’s no “cash” involved and cardholders don’t know they’ve taken a cash advance until they look at their next statement.

Here are some of the most common forms of cash advance.

Cash withdrawal (ABM or over the counter): Pretty self-explanatory. Check to see if making the transaction is cheaper through an ABM or over the counter, since the applicable fees may be different.

Gambling: If you use a credit card to buy into an online poker tournament, purchase chips at the casino, place off-track bets, or even purchase 50/50 tickets at a hockey game, you’re making a cash advance transaction. While gambling charges often look like regular credit card transactions, especially online, they are subject to the same interest rates and limits as any other cash advance, and may or may not incur additional fees.

Credit card cheque (also known as “convenience cheques”): Business credit card holders often use credit card cheques to pay their suppliers. Credit card cheques can also be used to make balance transfers between one credit card and another.

Quasi cash: This includes precious metals, digital currency (for example, Bitcoin) and foreign currency—essentially, money in a different form.

Transfer to a chequing account: Borrowing from your credit card in order to add funds to a regular chequing account counts as a cash advance transaction. If you are making this kind of transaction in order to pay off another credit card, consider waiting for a “balance transfer” promotion through your bank, which may enable you to transfer your credit card balance directly, at a lower rate.

When a cash advance is not your best option

If you’re using cash advances to consolidate debt, consider taking out a lower-interest loan. If you’re worried you may not qualify for an ordinary loan, talk to your banker about consolidation loans, which are designed specifically for people trying to improve their financial situation by merging their debt.

If you’re using cash advances to cover everyday living expenses, or to help out a family member or friend, consider applying for a line of credit. Generally, lines of credit have drastically lower interest rates than credit cards, and can be accessed without incurring high transaction fees.

If you’re using cash advances to exchange currency or send money overseas on a regular basis, talk to your financial advisor about how to perform the transfers directly from your bank account. Or check out this guide to making a global transfer through ATB.

If you’re using cash advances to purchase investments, consider how the interest and fees you’ll pay measure up against the profitability of the investments. If you have to use a cash advance (for example, when purchasing digital currency), make sure you have the capacity to pay off your credit card balance immediately to avoid having to pay unnecessary interest.

The key to using cash advances responsibly is understanding them and their implications. If you take the proper precautions, have the funds available, and make timely payments, cash advances can be a useful way to access cash and make certain transactions (such as purchasing Bitcoin).

If you’re in need of immediate funds and are considering taking a cash advance on your credit card, you may want to consider what other options are available to you first. To speak with an advisor about your financial needs and situation, call our Client Care team or make an appointment at your local branch.

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