Credit Card Cash Advance Fee Explained
Many credit cards allow cardholders to withdraw cash against the credit limit in a transaction called a cash advance. It's kind of like withdrawing cash from the ATM using your debit card, only this transaction is borrowing cash from your credit. When you use your credit card for a cash advance, you have to repay the money just as you do with purchases you make on your credit card.
The Cash Advance Fee
Your credit card issuer isn't really doing you any favors by letting you take out a cash advance, which can be done via ATM or through convenience checks your card issuer sends in the mail.
They'll make money off the transaction, by charging a cash advance fee each time you take out a cash advance against your credit limit. That's on top of interest charged starting from the day you make the cash advance.
How Much is a Credit Card Cash Advance Fee?
The exact amount of your cash advance fee depends on the amount of your advance and the method your credit card issuer uses to calculate the fee.
Most credit card issuers charge either a flat fee or a percentage of the cash advance amount, whichever is greater. For example, a typical cash advance fee is the greater of $10 or 5%. So, if you take out a cash advance of $100 under these terms, your cash advance fee would be $10 since 5% of $100 is only $5. On the other hand, if you take out a cash advance of $500, your cash advance fee would be $25.
With some credit cards, you may face a cash advance fee even if you don't take out a cash advance from the ATM.
You'll also be charged a cash advance fee when you use a cash advance convenience check or use your credit card as overdraft protection or another cash equivalent transaction. The fee for using your credit card for overdraft protection may be different from the regular cash advance fee.
Your credit card issuer is required to disclose the method it uses to calculate your cash advance fee.
Refer to your credit card agreement or the back of your billing statement for more information. If you have questions about your cash advance fee, contact your credit card's customer service department by calling the number on the back of your credit card. Know how the fee is calculated before you take out a cash advance so you won't be caught off guard.
Can You Avoid a Cash Advance Fee?
Avoiding a cash advance fee is extremely difficult. Some credit card issuers even charge a fee for purchasing items that could easily be converted to cash. These are called cash equivalent transactions and include the purchase of things like money orders, reloadable gift cards, wire transfers, and traveler's checks.
You can minimize your cash advance fee by reducing the amount of cash you withdraw on your credit card. And since interest starts accruing right away on a cash advance, paying your cash advance back quickly will lower the overall cost of the advance.