A cash advance is a type of short-term loan offered by credit card issuers. It allows cardholders to borrow money against their line of credit. Cash advances usually come with high interest rates and charges, but they are attractive to borrowers because they also have quick approval and fast financing. When you apply for a cash advance loan, you increase your credit utilization by adding more to your credit card balance.
The interest rate charged on cash advances is usually much higher than the rate charged on purchases. Cash advances can have a negative impact on your credit score, depending on the amount you borrow. Unlike a cash withdrawal from a bank account, a cash advance should be returned just like anything else you deposit on your credit card. When you receive a cash advance from a credit card with an outstanding balance, your payments can be used to refund the purchase balance (which has a lower interest rate) before being applied to the cash advance balance (which has a higher interest rate).
Cash advances work in a similar way to installment loans, in that they give you a lump sum of money, but they are not the same thing. If you have an emergency expense, you may be able to charge it to your credit card instead of receiving a cash advance. Instead of taking a cash advance at an ATM, consider overdrawing your checking account with your debit card. If you have multiple credit cards, minimize the cost of a cash advance by using the card with the lowest APR for cash advances and not using a card with a high balance. When you withdraw cash with a debit card, it's money that already belongs to you, while a cash advance isn't money that comes from your bank account.
Cash advances come with high fees and the danger of being caught in a debt cycle. The annual percentage rate (APR) charged to you for a cash advance may not be the same as the APR for purchases.
