What Does Available Credit for Cash Mean?
Unpack "available credit for cash" on credit cards. Understand this unique limit, its function, and key financial considerations.
Available credit for cash is a specific portion of a credit card’s overall credit limit that can be withdrawn as cash. This amount is typically displayed on credit card statements or online banking platforms, providing cardholders with a clear indication of how much cash they can access from their credit line. It represents a distinct financial tool, separate from the general credit available for everyday purchases.
Understanding Available Credit for Cash
This cash can be accessed through various methods, including ATM withdrawals, transactions at a bank teller, or by utilizing convenience checks issued by the credit card company. It is important to recognize that this cash advance limit is a subset of the total credit limit, meaning it is often less than the overall credit available on the card. For instance, a card with a $7,000 credit limit might only allow a cash advance of $400 to $500. It functions as a direct loan from your credit card issuer, drawing funds against your established credit line. When you take out a cash advance, the borrowed amount is added to your credit card balance, similar to other transactions.
How It Differs from Regular Available Credit
Available credit for cash differs significantly from the regular available credit used for purchases, primarily in its purpose and the way it is treated by the issuer. Regular available credit is designed for transactional spending, such as buying items online or in physical stores, where the credit card acts as a payment method for goods and services. While both types of credit draw from your overall credit line, they are subject to different terms and conditions. Credit card companies often maintain two distinct “credit limits” for cardholders: the overall credit limit for all transactions and a separate, lower, cash access limit. This distinction means the financial implications of using available credit for cash are more substantial than for regular purchases.
Factors Affecting Available Credit for Cash
Several factors influence the specific amount of available credit for cash that a cardholder can access at any given time. The overall credit limit on a credit card serves as the absolute cap, as the cash advance limit can never exceed this total. Within this overall limit, lenders establish a specific, lower sub-limit for cash advances, which might be a fixed amount or a percentage of the total credit limit. For example, if a credit limit is $15,000, the cash advance limit might be capped at 30%, allowing for a $4,500 cash advance.
The current balance on the credit card also directly impacts the available credit for cash. Any outstanding balance, whether from previous purchases or prior cash advances, reduces both the regular available credit and the available credit for cash. Conversely, making payments on the credit card balance will increase the available credit for both types of access.
Costs and Considerations of Using Available Credit for Cash
Utilizing available credit for cash comes with distinct financial implications that make it a more costly option than standard purchases. A common cost is the cash advance fee, which credit card companies charge for each transaction. This fee ranges from 3% to 5% of the amount withdrawn, or a flat fee of around $10, whichever is greater. For instance, a $200 cash advance with a 5% fee would incur a $10 charge.
Beyond the initial fee, cash advances are subject to higher Annual Percentage Rates (APRs) compared to the interest rates for regular purchases. The average APR for cash advances can range from 24.99% to 29.99%, while standard purchase APRs might be lower. Interest on cash advances begins accruing immediately from the transaction date, without the grace period provided for purchases. This means interest starts accumulating on the borrowed amount from day one, making prompt repayment important to minimize costs.
Using a cash advance also impacts a cardholder’s credit utilization ratio, which is the amount of revolving credit used compared to the total available credit. A cash advance increases the outstanding balance, thereby raising the credit utilization ratio, which can temporarily affect credit scores if it pushes the ratio above recommended levels, such as 30%. While a cash advance itself isn’t reported differently on a credit report than a regular purchase, the increased balance and potential for higher interest charges can make it harder to pay off, potentially leading to a sustained higher utilization and a negative impact on credit over time.