Do Cash Advances Earn Points & What Are the Risks?
Unpack the reality of credit card points on cash advances and their often costly financial implications.
Credit card rewards points offer consumers the opportunity to gain benefits, such as cashback, travel miles, or gift cards, by making eligible purchases. A cash advance, conversely, allows individuals to borrow money directly against their credit card’s available credit limit. While both involve using a credit card, their fundamental nature and associated terms differ significantly.
Earning Points on Cash Advances
Cash advances typically do not earn rewards points. Credit card issuers generally exclude these transactions from their rewards programs. This exclusion is standard across the credit card industry, making it an almost universal rule.
While rare promotional circumstances might offer some form of reward, these are highly uncommon and not representative of general credit card terms. For most credit cards, a cash advance is treated distinctly from a purchase that qualifies for rewards.
Reasons for No Points
Credit card companies structure rewards programs to incentivize spending on goods and services, generating revenue through interchange fees paid by merchants. When you make a purchase, the merchant pays a percentage of the transaction to the card issuer, a portion of which is shared as rewards. A cash advance bypasses this merchant-based system entirely.
A cash advance is a direct loan from the credit card issuer. Since no merchant is involved to pay an interchange fee, the issuer does not have the same revenue stream to fund rewards. Instead, they profit from cash advance fees and higher interest rates. Offering rewards on cash advances would directly reduce their profitability.
Costs and Implications of Cash Advances
Cash advances come with significant financial implications beyond the absence of rewards points. A primary cost is the cash advance fee, typically 3% to 5% of the amount withdrawn, often with a minimum fee. This fee is charged immediately upon taking the advance.
Interest accrues on cash advances from the moment the transaction occurs, as there is no grace period like with standard credit card purchases. The Annual Percentage Rate (APR) for cash advances is typically higher than for regular purchases, often 22.99% to 27.99% or more. This immediate and higher interest rate means a cash advance can quickly become a very expensive way to access funds.
Taking a cash advance can also impact your credit score by increasing your credit utilization ratio. This ratio measures the amount of revolving credit used compared to your available credit limit; keeping it below 30% is recommended for a healthy credit score. A large cash advance can significantly raise this ratio, potentially causing a temporary dip in your score if not paid down quickly.