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Most credit cards allow you to withdraw cash at a regular cash machine or ATM, just like a debit card. Although it may be a convenient way to access some extra money, it can be an expensive way to borrow.
Here, we explain how a credit card cash advance works, the costs and the alternatives.
What is a cash advance?
Withdrawing money on your credit card is called a cash advance. This is because the provider is lending you money you will have to pay back.
Before you consider a cash advance, it’s important to know there are five key ways in which cash advances work differently from other credit card purchases:
- You’ll be charged a fee: Typically, providers will charge you a cash advance fee of around 3% of the amount you withdraw, or a minimum of £3. So if you withdraw £200 you will be charged around £6.
- There’s a higher rate of interest: Even if you have a 0% interest rate credit card, it is unlikely to apply to cash advances. Check your terms and conditions to find out exactly how much interest you will pay.
- You won’t get an interest-free period: Usually, when you spend with a credit card, you have typically up to 56 days to clear the balance before you are charged interest. With a cash advance, you won’t normally benefit from this interest-free period and will be charged interest from the moment you withdraw the money, even if you clear the balance before your next statement date.
- It could impact your credit score: Using a cash advance will leave a mark on your credit file and may affect your credit score. This is because lenders tend to view cash advances as a sign of poor money management or financial difficulty.
- You won’t have Section 75 protection: When you withdraw cash from your credit card you won’t be protected by Section 75 of the Consumer Credit Act 1974. This means you won’t have any purchase protection and or be able to recoup the money if something goes wrong.
What transactions are considered to be a cash advance?
It’s not just cash withdrawals that are viewed as cash advances. Although the rules vary between providers, the following are all likely to be classed as cash advances. This means they will also incur extra fees and a higher interest rate:
- Mortgage payments.
- Buying foreign currency.
- Paying a utility bill.
- Spending money on gambling, including lottery tickets and scratch cards.
- Transferring money to a current account.
- Share dealing, or buying cryptocurrency.
- Paying government or court fines.
- Buying or topping up payment cards, mobile wallets or electronic money.
How do credit card cash advances work?
Getting a cash advance from a credit card is fairly simple. If you want to take out cash from an ATM, you just need to insert your card and key in your PIN, just as you would when using a debit card.
However, there’s usually a maximum limit that you can withdraw, which may be less than your available balance. This varies between providers, so check the terms and conditions. Some ATMs also have withdrawal limits, which are typically set at £300-£500 per day.
You may also be able to use your credit card for cash advances abroad. However, you will be charged an additional foreign exchange fee on top of your regular cash transaction fee and interest, so this is a particularly expensive option.
It’s easy to forget that the transactions listed in the section above are also classed as cash advances, even though you may not physically handle any cash and may think you’re just using your credit card to make a purchase in the usual way.
Should I use a credit card for a cash advance?
A cash advance is a quick and easy way to get your hands on some extra money, so it can be tempting if you have to cover an unexpected expense. However, it’s an expensive way to borrow – and if you rely on it too often it’s likely to impact your credit rating.
As a result, it’s only really worth considering if you don’t have any other options and if you’re confident that you can pay off the balance as soon as possible to minimise the amount you will pay in interest.
Although cash advances will rarely be the best option, they will often be cheaper than taking out a payday loan.
Ceri Roberts, Lead Writer and Credit Cards Expert at NerdWallet
What our Nerds say…
“If you need to pay with cash, perhaps because a retailer or service provider doesn’t accept credit cards, a cash advance can be an expensive way to do this due to fees and higher interest rates. Instead, consider applying for a money transfer credit card, which allows you to transfer money directly to your bank account so you can then withdraw it as cash. You may even qualify for an introductory offer, meaning you won’t pay any interest on what you borrow for a set period of time.”
Alternatives to a cash advance
Before you take out a cash advance on your credit card, it’s worth exploring the following options which could save you money on interest and fees:
- Money transfer credit card: These are specialist cards that allow you to move money from your credit card to your bank account. You could then withdraw the money from your account without paying any further fees. Bear in mind that you will often be charged interest on transfers, but you may find money transfer cards that offer 0% rates for a limited period. If you pay off your balance before the 0% period ends, you won’t be charged for making the money transfer.
- 0% credit card: If you’re eligible for a 0% introductory offer you won’t be charged any interest on new purchases for a set period of time. If you have an expensive purchase in mind, and can pay it off within the 0% period, this will be a cheaper option than a cash advance. As an added bonus, any purchases you make on the card with a value of between £100 and £30,000 could also be eligible for Section 75 protection.
- Personal loan: Personal loans are available from many providers and allow you to borrow money at a set interest rate. This might be an option if you want to borrow a higher amount over a longer period. However, personal loans are not as flexible as credit cards and may not be suitable if you only need to borrow a small amount of money.
- Family and friends: This won’t be an option for everyone, but it may be worth asking family members or friends for a loan. It can be a cheaper way to borrow cash, but you must consider the impact that borrowing money could have on your relationship. It is a good idea to put the terms of the loan in writing, so both parties agree on how and when it will be repaid.
- Overdraft: If you have an overdraft facility on your current account, it may make more sense to use this rather than withdrawing cash from your credit card. Some people have a limited interest-free overdraft, which would allow you to dip into it at no extra charge. However, overdrafts typically charge high interest rates (often up to 40%, and sometimes more). They may be an option if you need to borrow a small amount of money over a short time but if you don’t pay it off promptly, this can turn into an expensive way to borrow.
» MORE: How do overdrafts work?
Help paying your bills
If you are considering a cash advance because you are struggling to pay your household bills or keep up with other repayments, doing so could make your situation worse. Several free and independent debt charities can help you find alternatives, including StepChange and National Debtline.
» MORE: How to get debt help
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