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What is a cash advance and how do they work?

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A cash advance may seem like an easy way to get cash fast, but it can cost you a lot of money in interest and fees. Before you take out a cash advance, familiarize yourself with the terms, so you're not hit with an unpleasant surprise. And better yet, avoid a cash advance altogether.

Below, CNBC Select reviews the basics of a cash advance: what it is, the terms and fees, as well as better alternatives for getting cash quickly.

How a cash advance works

A cash advance is basically a short-term loan offered by your credit card issuer. When you take out a cash advance, you're borrowing money against your card's line of credit. You can typically get a cash advance in a few different ways:

  • At an ATM: If you have a PIN for your credit card, you can go to an ATM and get a cash advance. If you don't have a PIN, you can request one from your card issuer. Note that it may take a few business days to receive a PIN, and there are often limits to the amount of cash you can withdraw from an ATM.
  • In person: Visit your bank and request a cash advance with your credit card.
  • Convenience check: Your credit card may have come with convenience checks, which can be used to write a check to yourself. You can then cash it or deposit it.

Cash advance terms and fees

Cash advances are an easy way to get cash fast, but they often come with hefty fees that outweigh any benefits. Before you take out a cash advance, review the terms so you're aware of the high charges you'll likely incur.

  • Cash advance APR: Cash advances carry a separate, and often higher, interest rate than purchases or balance transfers. For example, the Citi® Double Cash Card has a 15.49% to 25.49% variable APR for purchases and balance transfers, but a 26.74% variable APR for cash advances.
  • Cash advance fee: Your card issuer often charges a cash advance fee, which is typically 3% or 5% of the total amount of each cash advance you request. For example, a $250 cash advance with a 5% fee will cost you $12.50.
  • ATM or bank fee: If you use an ATM or visit a bank, you can expect a fee for taking out a cash advance.
  • No grace period: Cash advances don't benefit from a grace period. That means you will be charged interest starting from the date you withdraw a cash advance. That's different from when you make a purchase with you card, and the issuer offers a grace period of at least 21 days where you won't incur interest if your balance is paid in full by the due date.
  • Separate credit limit: Cash advances often have a separate credit limit that's a portion of your overall credit limit. You may only be able to take out a few hundred dollars.

The cost of a cash advance

Cash advances have numerous terms and fees, as mentioned above, but you may wonder how much the whole thing may cost. Here's an example:

How much a $500 cash advance can cost

Terms Cost
Cash advance withdrawal$500
Monthly payment$50
Cash advance fee (5%)$25
Cash advance APR (26.74%)$72 in interest
ATM fee$2.50
Estimated time to pay off the cash advance12 months
Total interest and fees$99.50

You wind up paying $99.50 in interest and fees if you took out a $500 cash advance and only paid $50 a month.

Alternatives to cash advances

Taking out a cash advance may seem like a good idea in the moment, but it can quickly lead you to rack up debt. We recommend avoiding a cash advance altogether and opting for some alternative options that have better terms.

  • Borrow from family or friends: You can ask family or friends for a loan. While it can be uncomfortable to ask, this can be the most cost-effective way to get the cash you need. Make sure you create a repayment plan to keep your relationship on good terms.
  • Take out a personal loan: Personal loans usually offer better terms than a cash advance, and you can have access to more cash if you have good credit. With a personal loan, you usually can pay back the loan at a fixed interest rate that's much lower than the APR charged by credit card issuers.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.