What is Credit Card Cash Advance? How Does It Work?

What is a Credit Card Cash Advance?

A Credit Card Cash Advance is a facility offered on credit cards that enables cardholders to withdraw cash from the bank's ATM. The Cash Advance facility can help individuals in case of a financial emergency. You can withdraw cash up to the limit set on your card by the credit card issuer, and just like any other purchases you make from your card, you need to repay it with interest and other charges on the due date. However, a cash advance might not be available on all credit cards. Also, the withdrawal limit, interest rate, and other charges differ from one credit card to another.

How does a Credit Card Cash Advance work?

The credit card swiping fees that the merchant has to pay to the bank and monthly rental of the swiping machine could be unaffordable to small merchants. Hence, many local grocery shops, vegetable sellers, salons, etc. do not accept card payments. If you are a reckless credit card user who swipes their credit cards for everyday shopping needs, you could find yourself in a pinch when you are in such a situation where you have to pay in cash. The Cash Advance might sound tempting in such cases.

You can check if you have a cash advance limit by logging into your credit card account or internet banking. If you could not find any details, you may call the Customer Care of the credit card issuer and check with them. To avail of the cash advance, you need to visit the bank's ATM and use your credit card just like you use your debit card to withdraw cash. Choose the 'Withdraw Cash' option after inserting the card into the ATM, enter the amount and PIN, and get the cash. Unlike the cash withdrawn from a debit card, this cash is borrowed against your credit card. Hence, you are required to repay it to the credit card issuer on the next due date. Besides, since it is borrowed money, the credit card company will charge you interest and other fees for using the facility.

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What are the benefits of Credit Card Cash Advance?

1. Instant Funds:

   End of the month, when your budget is tight, or whenever you find yourself in a situation of cash crunch, the Credit Card Cash Advance can help you get instant cash.

2. Effortless:

   Since you only have to visit the ATM to withdraw cash, there are no complicated formalities or lengthy processes like regular loans.

3. EMIs:

   Many credit card issuers let you repay the cash advance in affordable monthly instalments. However, it is not advisable to opt for it as the interest rate is very high compared to other loans, such as personal loans, secured loans like gold loans, loans against property, etc.

How much cash can you withdraw with the Cash Advance Facility?

The Credit Card Cash Advance limit depends upon the type of credit card you have, your credit score, and your repayment history. So, the cash advance limit is not the same as the normal purchase limit that you use for swiping the card or online purchases. In fact, in most cases, it will be lower than your credit card purchase limit. Depending on the credit history and other factors, the cash advance limit may not be sufficient for emergency needs as the limit is generally on the lower side.

How much does it cost you to take a cash advance?

As discussed, a cash advance is the costliest transaction that you make on your credit card. The interest rate on Credit Card Cash Advance is usually very high compared to the normal credit card interest rate. Furthermore, you will be charged with a cash advance fee which could be either a percentage of the cash advance or a flat rate. For example, your credit card issuer may charge you a fee of 3% of the cash advance or Rs 500, whichever is higher. Therefore, it is crucial to check the credit card terms and conditions to know how much exactly you will have to pay to avail of a cash advance. Typically, most credit card issuers charge 2% to 3.5% interest on a monthly basis, which is equivalent to 24% to 42% p.a.

Unlike regular loans, cash advances do not have grace periods. So, the interest starts accruing on balance as soon as the transaction gets completed. You will be charged with the interest even if you pay your balance in full and start the billing cycle with a zero balance. Similarly, you will have to pay the finance charges even if you pay the balance in full.

To ensure you are charged with the minimum interest, it is advisable to repay your balance in full as soon as possible and do not wait for the monthly statement to arrive. You should also know that apart from the cash advance fee, you will also be charged an ATM fee.

How does the repayment of Credit Card Cash Advance take place?

As we already discussed, you will have to repay the entire balance on the next due date of the billing cycle. You are required to repay the principal amount that you withdrew, interest for that period, finance charges, cash advance fees, ATM fees, etc., on or before the due date. Some credit card issuers offer an EMI facility that lets you repay the cash advance in affordable monthly EMIs. However, opting for an EMI facility makes the cash advance even costlier.

However, if you have made multiple transactions on your credit card and paid only the minimum amount due, the repayment amount will go towards the balance of your purchases and not towards the cash advance. It is because the credit card issuers by default, pay off the amounts with lower interest. Since the cash advance has the highest interest rate, it builds up maximum interest right from the day you avail of the cash advance. This ultimately increases your outstanding cash advance balance in the next billing cycle, and you might have to pay an even higher interest rate. Therefore, in case of multiple credit card transactions, it is advisable to repay the full due amount.

Apart from the cash withdrawn from credit cards, some other transactions are also considered cash advances. These transactions include but are not limited to buying foreign currency, buying lottery tickets or using the card for gambling, using an ATM abroad for a cash advance, etc.

To Conclude:

Opting for a cash advance is an expensive transaction to do on a credit card. It is not advisable to use the Credit Card Cash Advance facility unless it is absolutely necessary and there is no other option left. If you are in urgent need of funds, you should consider taking an instant personal loan or instant credit card loan that many banks and credit card issuers offer. However, if you have to opt for a Credit Card Cash Advance, you should carefully read the terms and conditions, know the interest and other charges you would be paying, and the repayment policy. Knowing all the details beforehand would help you avoid being charged extra and prepare for the repayment.

Warm Regards,
Ketki Jadhav
Content Writer