Can You Use an ATM With a Credit Card?
Explore the realities of using a credit card at an ATM. Understand the costs, risks, and smarter alternatives for accessing funds.
Withdrawing cash using a credit card at an ATM is called a cash advance. Unlike a debit card, which uses your own funds, a cash advance borrows directly from your credit card’s available credit limit, similar to a loan.
Understanding Credit Card Cash Advances
To complete a cash advance at an ATM, you will need your physical credit card and a Personal Identification Number (PIN) associated with that card.
The funds are not drawn from a personal bank account; instead, the cash advance amount and fees are added to your credit card balance. This reduces your available credit and creates a new debt.
Cost Structure of Cash Advances
Credit card cash advances are more expensive than standard credit card purchases due to fees and interest structures.
Most credit card issuers charge a cash advance fee, either a flat fee or a percentage of the amount withdrawn, whichever is greater. Common fees range from $10 or 3% to 6% of the advance amount.
On top of the issuer’s fee, you might also incur separate fees from the ATM operator, especially if it is outside your credit card’s network.
Interest on cash advances begins accruing immediately from the transaction date. Unlike purchases, there is no grace period, meaning interest starts accumulating the moment you receive the cash.
The Annual Percentage Rate (APR) for cash advances is higher than for regular credit card purchases. This elevated interest rate, combined with immediate accrual, makes cash advances expensive. Paying off a cash advance quickly is advisable to minimize total interest.
Impact on Credit and Withdrawal Limits
Taking a cash advance can influence your credit standing by affecting your credit utilization ratio. This ratio measures the amount of credit you are using compared to your total available credit.
A cash advance immediately increases your outstanding balance, which can raise this ratio.
Lenders prefer to see credit utilization below 30% of your available credit, as exceeding this threshold can negatively affect your credit score. While a cash advance itself is not directly reported as a separate negative event, a higher balance resulting from it can lower your score.
Credit card companies also impose specific limits on cash advances, usually a percentage of your overall credit limit.
Exploring Other Options for Funds
Given the costs associated with credit card cash advances, exploring alternative methods for obtaining funds is a more financially sound decision.
Utilizing an emergency savings fund, if available, can provide immediate cash without incurring fees or interest. Financial experts recommend maintaining an emergency fund covering three to six months of essential living expenses.
Considering a small personal loan from a bank or credit union can be another option, as these come with lower interest rates and more structured repayment terms than cash advances.
Some employers also offer earned wage access programs, allowing employees to access a portion of their earned but unpaid wages before their regular payday.