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Credit Card Cash Advances: What They Are and How They Work

When you’re low on cash, you might think about getting a cash advance from your credit card rather than going through the more formal application process for a loan. When you get a cash advance drawn from an existing account, there’s no credit check required. Funds are available immediately. Like a formal loan, a cash advance needs to be paid back and is subject to interest. Make sure you know what fees and interest you’ll be charged before you take out a cash advance.

How does a cash advance work?

Taking out a cash advance is essentially a short-term loan borrowed against your credit limit. The interest rate charged for a cash advance is typically higher than the interest rate on purchases. This means that cash advances can be an expensive way to borrow money and may not be the best option when you need fast cash.

Some transactions on your credit card account may be treated like a cash advance, such as:

  • Withdrawing foreign currency or traveler’s checks
  • Money orders
  • Overdraft protection when you use a credit card to secure your checking or savings account

You’ll pay compounding interest immediately, and some credit card issuers may charge a fee for a cash advance. Most credit card companies will only give you access to a portion of your available credit line. This amount may be printed on your monthly credit card statement, or visible in your online bank account.

How to get a cash advance from your credit card

If you do decide to get a cash advance, the most common way is to access the money through an ATM. Simply insert your card, enter your PIN, and select the amount of cash to withdraw. Some banks may provide cash advances through tellers at a local branch; and some credit card issuers may supply checks that can be filled out with your name as the payee. Please be aware that Santander does not offer either of these options.

Does a cash advance impact your credit score?

Your credit will not be affected for simply withdrawing a cash advance, but it can change your credit score, especially if you take out a large sum, don’t pay it back on time, or increase your debt in other ways.

It’s important to note that there’s no grace period on the interest charges for a cash advance. On normal credit card purchases, you get at least 21 days until you’re charged interest. That is not the case with cash advances, so even if you pay it off completely at the end of the month, you’ll be paying some interest charges. It may hurt your credit score if the higher cost causes you to pay your balance more slowly.

Other factors that can hurt your credit score are a high utilization ratio and a high balance. Your utilization ratio, which is the portion of your available credit that you use, should stay under 30% to be considered good. Keeping a high balance is a danger to your credit score, so cash advances are not recommended. They are high-risk and should be a last resort.

Alternatives to a cash advance

There are other ways to get cash quickly that may be less expensive and better suited to your situation. Some other options are:

  • Apply for a personal loan
  • Use an emergency fund (such as a savings account)
  • Borrow from family or friends

What’s a personal loan?

Interest rates and fees are usually lower on personal loans, but they do require a credit check. Those with good credit scores may want to consider a personal loan, even though it can take longer and requires more paperwork than a cash advance. It’s a more conservative financial move.

Some of the benefits of personal loans are:

  • One lump sum. You’ll get the loan payment all at once, so it’s easier to consolidate debt or make large purchases.
  • Fast funding times. Generally, these types of loans are approved and funded quickly. Some lenders can deposit the proceeds to your account the next business day, or even the same day. However, be aware it could take a little longer depending on whether additional documents are requested, or if additional review is required to make a final decision.
  • Lower interest rates. Personal loans come with fixed interest rates that are generally lower than a cash advance, and have predictable monthly payments, making the loan easier to manage than a cash advance.
  • No collateral requirement. Unsecured loans don’t require collateral, like your car or home, as a guarantee. However, if you don’t meet the agreed-upon minimum repayment terms, you’ll hurt your credit and likely face other financial consequences like additional fees.
  • Flexibility. Personal loans can be used for a wide range of expenses, from consolidating debt to paying medical bills.

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Santander can help you figure out the best solution

If you need more cash than you can access through your debit card, get in touch with a Santander banker, who can help you understand your options.

Remember, cash advances can be expensive and are best used when they can be paid back quickly. For example, a cash advance may work when you’re making a small purchase before your paycheck hits your account. Otherwise, options like a personal loan or borrowing from friends and family might better suit your needs.