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 transfers, personal loans, and more.
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.
High transaction fees on the cash advance:
Let’s do the math for a hypothetical cash advance.
Here are the assumptions of this example:
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.
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).