Can I use a Credit Card at an ATM for cash withdrawal?

Can I use a Credit Card at an ATM for cash withdrawal?

You may be asking yourself “Can I get cash out of the ATM with my credit card?”

Yes! Most credit cards will let you withdraw cash at an ATM. Great news, right?

 

                                       

Borrowing money on your credit card is a cash advance, a type of short-term loan, and it’s worlds away from a simple debit card cash withdrawal. Cash advances usually come with very high fees. Even worse, cash advances can signal to lenders that you’re being irresponsible with money during a credit check. It’s probably in your best interest to avoid using anything but your debit card with an ATM.

If you think you’d like to avoid a cash advance, don’t worry — there are plenty of alternatives, like bank balance transferspersonal loans, and more.

 

What Is a Cash Advance?

A cash advance is a short-term loan that involves using your credit card to withdraw cash.

You can get a cash advance at most ATMs, or at a financial institution.

Cash advances are treated differently than the typical credit card transaction. Most charge up-front fees that are a percentage of the total cash requested, with a minimum fee if your withdrawal is small enough.

Cash advances also tend to have much higher interest rates than normal purchases, and they don’t usually have grace periods, so you start to incur interest charges right off the bat.

Naturally, there’s a limit to how much money you can withdraw with a cash advance. You should be able to find it in your card’s terms alongside other credit limit details.

 

Reasons Why Cash Advances Are a Bad Idea

High transaction fees on the cash advance:

  • You’ll usually have to pay a fee based on the amount of the cash you borrow. The terms on your credit card agreement usually say something like “Either $10 or 5% of the amount of each cash advance, whichever is greater.” That means you’ll be charged a flat rate of $10 when you borrow up to $200, or 5% of the amount you borrow if it’s over $200.
  • No grace period: When you make a purchase on most credit cards, the credit card company won’t start charging interest right away. A credit card cash advance is different. When you borrow cash from your credit card company, they start charging you interest immediately, so the finance charges add up quickly. Learn more about credit card grace periods here.
  • High interest rates: Though not nearly as high as certain alternatives, like payday loans, the APR (annual percentage rate) on cash advances is usually much higher than normal credit card purchases. Around 25% is not unusual. Remember, there’s no grace period. So you’ll start getting charged interest at this absurdly high rate immediately.
  • Bad sign for lenders: If your credit card company sees you’re using cash advances, you might get flagged as a risky borrower by their risk models. That’s because they know people use cash advances when they’re desperate. If they see you as risky, you might not be able to get higher lines of credit or good terms with that bank in the future. They might even apply a higher interest rate to your balance going forward, or close your account.
  • Reduced credit utilization: Your cash advance balance adds to your credit card debt. This debt shows up on your credit reports. Generally, the higher your credit card debt is compared to your total available credit, the lower your credit scores will be. If you already have high balances on your credit cards compared to your credit limits, then cash advances can have a big negative impact on your credit scores.

 

Example Cash Advance Scenario

Let’s do the math for a hypothetical cash advance.

Here are the assumptions of this example:

  • you are doing the cash advance on the first day of your billing cycle
  • the Cash Advance APR of your card is 24.99% (this is a typical Cash Advance APR)
  • the Cash Advance Fee part of your cardholder agreement says “Either $10 or 5% of the amount of each cash advance, whichever is greater.”
  • you have a 30-day billing cycle
  • your credit card company compounds interest on cash advances daily

So, you withdraw $1,000 at an ATM with your card on the first day of your billing cycle.

Right away, you’ll get hit with that Cash Advance Fee. Since 5% of $1,000 is $50, and that’s greater than $10, you immediately owe $1050. You may also have to pay an ATM fee if the ATM isn’t in your bank’s network, adding a few bucks to the amount owed.

If you wait until the end of this billing cycle before paying any of it back, how much will you owe?

The APR is an annual interest rate. Since the APR is 24.99%, you can get the daily interest by dividing the APR by the number of days in the year: 0.2499/365 is .00068, so the daily interest rate is 0.068%.

This means for every day that passes, you will be charged an additional 0.068% of the total amount you owe on top of what you already owe.

That may sound like a low percentage, but by the end of your first billing cycle you would owe an extra $19.91 just in interest. When you add that to the cash advance fee and the amount you borrowed, you owe a total of $1,069.91 by the end of the month.

So, for that $1,000 of cash you withdrew, you end up paying an additional $69.91 in interest and fees after only one month.

 

Cash Advance Alternatives

You’ve probably noticed that we don’t advocate for the cash advance. Sure, the service is useful if you’re really desperate, but there are enough other options that you’re probably better off looking elsewhere unless you’re dealing with an actual emergency (and you don’t already have an emergency fund).

  • Get a personal Loan
  • Conduct a bank Balance Transfer with a 0% APR card
  • Borrow Money

 

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