Can You Get Cash From a Credit Card?

It is often possible to obtain cash using a credit card, but understanding the financial implications is important. This article explores how cash can be accessed via a credit card, details the associated costs and consequences, and presents alternative options for obtaining funds.

Understanding Cash Advances

A credit card cash advance allows cardholders to borrow cash directly against their credit limit. This differs from a standard credit card purchase, where the card is used to buy goods or services. The money is immediately available to the cardholder.

One common method for obtaining a cash advance is by using a credit card at an automated teller machine (ATM). This typically requires a personal identification number (PIN). Alternatively, a cardholder can visit a bank branch and request a cash advance directly from a teller.

Another way to access cash is through credit card convenience checks, which are linked to the credit card account. These checks function similarly to personal checks but draw funds from the available credit limit. A cash advance immediately reduces the available credit on the card and initiates specific financial terms.

Costs and Consequences

Cash advances typically come with a higher annual percentage rate (APR) compared to standard purchases. For instance, while a credit card might have a purchase APR of 18%, its cash advance APR could be 25% or more. This elevated interest rate applies from the moment the cash advance is taken, as there is usually no grace period for these transactions. Unlike purchases, which often have a grace period before interest begins to accrue, interest on a cash advance starts accumulating immediately until the balance is fully repaid.

In addition to higher interest rates, cash advances are subject to various fees. Most credit card issuers charge a cash advance fee, which is commonly either a flat fee, such as $5 or $10, or a percentage of the advanced amount, typically ranging from 3% to 5%. These fees are usually added directly to the cash advance balance, meaning interest will also accrue on the fee itself.

Taking a cash advance can also negatively impact a credit score. By increasing the amount of credit utilized, especially if it pushes the utilization ratio above 30% of the available credit, it can signal higher risk to credit bureaus. Credit utilization is a significant factor in credit scoring models, and a sudden spike can cause a score to drop. Frequent cash advances might be interpreted as a sign of financial distress by lenders, potentially affecting future credit applications or terms.

Alternatives to Cash Advances

Several alternatives to a credit card cash advance can offer more favorable terms. One straightforward option is to withdraw funds directly from a checking account using a debit card at an ATM or bank. This method incurs no interest, as it uses money already owned, and typically only involves ATM fees if using an out-of-network machine. Maintaining an emergency fund in a savings account can provide a readily accessible source of cash for unexpected expenses, preventing the need for high-cost borrowing.

Another possibility is to consider a personal loan from a bank, credit union, or online lender. These loans usually offer fixed interest rates that are significantly lower than cash advance APRs, and they come with structured repayment plans. While a personal loan requires an application and approval process, the long-term savings on interest and fees often outweigh the temporary inconvenience. The eligibility for a personal loan depends on factors such as creditworthiness and income.

Borrowing from trusted friends or family members can also be a viable, low-cost option, provided clear terms are established. For individuals with employer-sponsored retirement plans, a 401(k) loan might be available, offering competitive interest rates and a structured repayment schedule. It is important to understand the specific rules and potential tax implications of borrowing from retirement accounts. Exploring these alternatives can provide a more financially sound path to obtaining necessary funds.