What are cash advances on credit cards?

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    Jordan Moore
    Jordan Moore

    A cash advance on a credit card lets you withdraw money from your card instead of just using it to tap or swipe to pay. 

    But you need to be careful when taking out cash advances because they carry higher interest rates than when you’re straight up using your credit card, and the interest rate starts to accumulate immediately. 

    Here are details to consider before taking out a cash advance:

    Added fees: Most credit cards charge a cash advance fee, which can range from 3% to 5% of the total amount you withdraw. So, if you take out $200, you could pay between $6 to $10 just in fees.

    Higher interest rates: The interest rates for cash advances are typically higher than those for regular purchases, sometimes 25% or higher.

    Immediate interest: There’s no grace period. Unlike purchases, where you might have a grace period of about 21 to 25 days before interest starts accruing, interest on cash advances starts piling up right away. 

    Cash advance limits: Credit cards usually have a specific limit for cash advances, which is often lower than your total credit limit. This could range from a few hundred dollars to a few thousand, depending on your credit card and your creditworthiness.

    If the above has you reconsidering taking out a cash advance, here are some alternatives in order of how much they’ll likely cost you:

    1. Emergency Fund: Ideally, you’ll have savings set aside for unexpected expenses, avoiding the need to borrow at high costs.
    2. Paycheck Advances: Some employers offer paycheck advances as a benefit.
    3. Borrowing from Friends or Family: This could be interest-free (though it’s essential to agree on repayment terms to avoid damaging the relationship).
    4. Credit Union Loans: Credit unions often offer short-term loans with more reasonable rates.
    5. Personal Loans: Often have lower interest rates than credit card cash advances and provide a fixed repayment schedule.
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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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