All you need to know about credit card cash advance

Last Updated: Tue, Mar 20, 2018 13:53 hrs
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Credit card cash advance, commonly called credit card cash withdrawal, is one of the popular features offered by credit card companies. The cash advance feature allows the cardholders to withdraw cash using their credit cards. The maximum amount of cash one can withdraw using a credit card is called 'Cash Limit' and is typically part of the credit limit of the card.

Though the cash advance feature sounds interesting and could really help in times of cash crunch, it has a few strings attached. Before opting for the facility, one needs to be aware of the terms and conditions, which typically vary from bank to bank and card to card, to make best use of it.

Here we discuss some common things you need to know about credit card cash advance and some tips to handle them smartly.

Cost of a credit card cash advance

While swiping a credit card at a point-of-sale (POS) terminal or using it to do some online transactions is completely free, withdrawing cash using a credit card is not.

Cash advances are considered one of most expensive types of credit card transactions because of the associated fees and charges. Two main things to look for in your credit card's terms and conditions are the 'cash advance fee' and the finance charges for cash withdrawals.

  • Cash advance fee or transaction fee is levied on every cash withdrawal made using the credit card. The fee varies from bank to bank and is typically 2.5% to 3% of the transaction amount or a fixed amount per transaction. Withdrawals from international ATMs are slightly higher than those from domestic ATM withdrawals.

  • Finance charges or the interest levied on cash advances is slightly higher than that of the interest levied on regular credit card spends. Further, there won't be any interest-free period for cash advances and the bank starts charging interest from the date of withdrawal till the cash is paid in full.

Cash advance fee and finance charges hence make cash withdrawals using a credit card an expensive affair.

Effects of cash advance on your credit limit

If you consider cash limit as an additional amount available on your credit card, you're wrong as it is a part of the credit limit. While some banks allow up to 80% of the credit limit to be withdrawn as cash, some others set a fixed amount as cash limit.

Either ways, if you use your cash limit to the fullest, it will eat up your credit limit leaving you with less available limit on the card.

How to manage cash advances effectively

Now that you understood the pros and cons of withdrawing cash using your credit card, let us see some tips that could help you make most of the cash advance feature on your credit card.

  • Use the cash advances only for emergencies such as medical expenses but not for your regular expenses.

  • Read and understand the terms and condition of all your credit cards especially about the cash advance facility. If you are not clear about a specific point don't hesitate to call the respective customer care for clarification.

  • Never exceed the available cash limit. To avoid this situation make sure you are aware of your available cash limit. You can find the cash limit as well as the credit limit on your previous months' statement or from your internet banking account which provides more up-to-date information. You can also contact customer care to check the same.

  • Don't go for another cash advance until you clear the existing one. It is also recommended to avoid any other purchases using your credit card till you repay the existing due.

  • Look for cheaper alternatives to cash advance. As discussed earlier, cash advances are one of the expensive type of credit card transactions. The fee charged on them along with daily accruing interest makes them heavy on your pocket. Hence, in times of cash crunch, try making payments using a credit card or look for other cost effective credit lines.

Hope this basic and important information about credit card cash advance will help you manage your debt smartly.

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