How to Take Money Out of a Credit Card

A credit card offers a way to obtain physical cash through a process known as a cash advance. Unlike typical credit card transactions for purchases, a cash advance allows you to borrow directly from your credit line, providing immediate liquidity when other payment methods are not feasible. Understanding the mechanics and implications of a cash advance is important before utilizing this option.

Understanding Cash Advances

A cash advance is essentially a short-term loan you take from your credit card’s available credit limit. Unlike a standard credit card purchase, which involves a transaction with a vendor, a cash advance means you are directly borrowing cash. This distinction is important because cash advances are treated differently by credit card issuers in terms of fees and interest accrual. The amount borrowed is added to your credit card balance, similar to a purchase, but the financial terms associated with it typically differ significantly.

Methods for Obtaining Cash

Accessing a cash advance from your credit card can be done through several common methods:

Automated Teller Machine (ATM): You will need your physical credit card and a Personal Identification Number (PIN) provided by your card issuer. Insert your card, enter your PIN, and select the “cash withdrawal” or “cash advance” option. You will then enter the desired amount, keeping in mind that ATMs typically have daily withdrawal limits, and you may be prompted to accept associated fees before the transaction is completed and cash is dispensed.
Bank Branch: Visit a bank branch and request a cash advance from a teller. This option is useful if you need a larger amount than an ATM allows or if you do not have a PIN for your card. You present your credit card and a government-issued photo identification to the teller. The teller processes the request, and you receive the cash directly.
Convenience Checks: Credit card companies may also provide convenience checks, which are blank checks linked to your credit card account. You can write these checks to yourself or to another party, effectively drawing funds from your credit line. When you write a convenience check to yourself, you can cash or deposit it at a bank. The amount of the check is then posted to your credit card as a cash advance.

Costs and Terms

Cash advances come with distinct costs and terms that differentiate them from standard credit card purchases. These charges accrue quickly, making cash advances an expensive borrowing option.

Cash Advance Fee

Credit card companies charge a fee for each transaction. This fee is typically a percentage of the amount advanced, often ranging from 3% to 5%, or a flat fee, such as $10, whichever is greater. This fee is applied immediately when the cash advance is taken.

Higher Interest Rates (APR)

Cash advances are subject to higher Annual Percentage Rates (APRs) than those applied to regular credit card purchases. Cash advance APRs are generally at the higher end, sometimes exceeding 25% or even 30%. This increased rate means the borrowed amount grows more quickly.

No Grace Period

Unlike purchases, where interest may be avoided if the balance is paid in full by the due date, interest on cash advances begins accruing immediately from the transaction date. This means there is no interest-free period for the borrowed cash.

Additional ATM Fees

When obtaining a cash advance from an ATM, additional fees may be incurred. Third-party ATM operators can charge their own fees for using their machines, which are separate from the fees imposed by your credit card issuer. These ATM fees are added to the overall cost of the cash advance.

Impact on Credit Utilization

A cash advance impacts your credit utilization ratio. This ratio measures the amount of revolving credit you are using compared to your total available credit. A cash advance increases your outstanding balance, which can raise your credit utilization. Lenders generally prefer to see credit utilization below 30%, and exceeding this threshold can potentially affect your credit score.

Repaying a Cash Advance

Repaying a cash advance involves specific considerations regarding how payments are applied. The repayment process is managed through your regular credit card statement, but the allocation of payments differs from standard purchases.

Credit card payments are applied in a specific order, especially when different balances exist on an account. Any amount paid above the minimum payment must be applied to the balance with the highest interest rate first. Since cash advances carry a higher APR than purchases, extra payments prioritize paying down the cash advance balance.

The cash advance amount contributes to your credit card’s minimum payment due each billing cycle. Paying only the minimum can prolong the repayment of the high-interest cash advance.

Prompt repayment is financially beneficial because interest on cash advances accrues immediately and at a higher rate. Paying off the cash advance quickly minimizes the total interest charged, reducing the overall cost of borrowing. Delaying repayment allows the higher interest to compound, making the debt more expensive over time.

Cash advances appear on your monthly credit card statement, listed separately from regular purchases. The statement will detail the cash advance amount, any associated fees, and the accrued interest. Monitoring your statement helps track the balance and ensures awareness of the repayment progress.