Are Cash Advances Bad?

If you need money in a hurry, you can get cash through your credit card or a payday loan. It’s quick and convenient, but don’t be fooled. It can be costly.

People look for cash advances when a financial emergency arises – mortgage, car loan, or utility bill is due – and not meeting the payment deadline could mean result in foreclosure, repossession, or electricity being cut off.

But be careful when considering this as a solution. Cash advances come with pricey interest rates and fees that might be double what you owe. That doesn’t mean you should avoid them at all costs; just be sure those costs are worth it.

How Cash Advances Work

A cash advance is a loan you get from a creditor, most often one of your credit cards. Instead of buying items using your Visa, American Express or other credit account, you’re getting cash by borrowing against your credit card.

Types of Cash Advances

Tapping into your credit card is a convenient way to get a cash advance. Maybe it is too convenient if you’re not fully educated on the costs that come with a cash advance.

Credit cards don’t come with PIN numbers, but it’s easy to request one from the card issuer. Once you have a PIN, you can insert your credit card in the ATM and withdraw cash. If you don’t want to use an ATM, bank tellers can also handle that transaction.

Some credit card accounts come with convenience checks. You write yourself a check for cash and deposit it in your account.

Payday loans, in which you borrow money that is repaid on your next payday, provide quick cash. Small businesses also can get merchant cash advances, which are loans given in exchange for a percentage of future credit card sales.

Understanding Cash Advances

The cash you get from an advance comes with strings attached, starting with a fee for the transaction. Sometimes it’s a flat fee of no more than $10. Usually, it’s 3%-5% of the amount you are borrowing.

For instance, a 5% fee on a $900 cash advance would be $45. There may also be an ATM or handling fee if you get a cash advance at an ATM or in a bank.

Cash advances also have separate interest rates (known as APRs) than what you pay for regular purchases. The average interest rate in 2025 was 25.32%, which was stiff enough. A cash advance interest rate is typically 5%-10% above that, so you could be looking at 35% interest or higher.

What’s more, you usually won’t incur interest charges on purchases if they are paid by the monthly due date. With a cash advance, there is no grace period. You begin paying interest the day you get it.

Some credit cards have specific dollar limits on cash advances. Most limit the amount to 20%-30% of your total credit limit. For example, if your card has a $12,000 limit, a 30% cap means you could get no more than a $3,600 cash advance.

Don’t overlook the impact on your credit score. Your credit utilization rate, which is the percentage of available revolving credit you’re using, is a major component in determining your score. If it’s above 30%, your credit score will start going down.

Cash Advance Pros

Even with all those strings attached, there are good reasons to consider getting a cash advance. It’s a lot easier than applying for a conventional loan, which comes with a lot of paperwork and suspense over whether you’ll qualify.

With a cash advance, you are borrowing from an existing line of credit. You don’t need to put up any collateral. And if you pay the money back quickly, the interest charges shouldn’t be a problem.

Even with the high interest rate, a credit card advance is still a lot better than getting a payday loan. Interest rates on payday loans are usually around 400% and can be 500% or higher.

Getting a cash advance is also better than writing a bad check. Banks have overdraft penalties when you spend more than you have in your account. They are usually $30-$35 per transaction. If you’re having a bad bank day with bills, those can add up fast.

Cash Advance Cons

There are a lot of reasons not to get a cash advance. First, there’s usually a transaction fee to get one started.

Cash advances have separate and higher interest rates than what you pay for regular purchases with your credit card. There is no grace period for cash advances. The interest charges begin right away.

Cash advances can damage your credit score by increasing your credit utilization rate. If it goes higher than 30%, your credit score will start coming down. The lower your credit score, the harder it will be to get future loans or credit accounts.

There’s also the danger of convenience. It’s easy and painless to stick your credit card in an ATM and get a few hundred dollars cash. That could make it tempting to do it every time you need a quick cash infusion. If you fall into that cycle, you’ll find out quickly how getting a cash advance can be very painful to your financial health.

Key Factors to Ask Before Taking One

You should think hard before taking out any type of loan. With a cash advance, you really need to do some serious pondering. The questions you should ask include:

• What is the interest rate compared to regular purchases with your credit card? It will typically be 3%-12% higher.
• Is there a transaction fee? If the answer is yes (and it probably is), you need to add that to the growing list of incidental costs.
• Do the interest charges begin immediately? Charges for purchases usually don’t kick in until the monthly due date. There usually is no such grace period for cash advances.
• How will a cash advance impact my credit utilization rate? If it pushes the rate higher than 30%, it will negatively impact your credit score.
• How soon can I repay the cash advance? If you can do it within a few days, many of the good reasons not to get a cash advance will not materialize. If you can’t, getting cash could cost you a lot of cash.
• Are there alternatives to getting a cash advance? There usually are, but they come with their own risks. You must decide whether they are less risky than getting a cash advance.

Alternatives to Cash Advances

The ideal place to get a cash advance is from your own stash. In this case, that would be money you have in a savings account or in an emergency fund.

Unfortunately, that is a problem for a lot of consumers. One in three Americans don’t have an emergency fund. For those who do, the median savings are $500, according to a 2025 survey by the financial services company Empower.

There are other options, however. They include:

• Asking for a paycheck advance from your employer.
• Asking a friend or family member for an advance. They’d hopefully give you better terms than your credit card company or a payday loan outfit. If they don’t, you probably need new friends or relatives.
• Getting a transfer balance credit card with a 0% interest rate introductory fee. That would allow you to buy necessities like groceries and gas on credit and theoretically have more room to save up some cash. Just remember, the interest rate on transfer balance cards will skyrocket when the introductory period ends.
• Some credit cards offer loans to allow customers to pay off purchases over time. See if your creditor has such a program, and if its terms are better than simply withdrawing cash. They probably are.
• Get a bank or credit union loan. If you qualify, the interest rate and fees will probably be significantly lower than those of a cash advance.
• Sell an asset. Painful as it may be, selling jewelry or furniture or a Van Gogh could bring you enough cash to get through whatever financial pinch you’re in.

When a Cash Advance Makes Sense

“Cash is King.” Even though money is increasingly digital, that old saying still holds true in most situations.

Getting a cash advance makes sense in an emergency. For instance, you could have a car accident on a trip out of town. The repair shop might require cash to fix your car. Or the local hospital might require cash to treat your injuries.

A cash advance makes sense if you need it to keep your electricity from getting cut off in the winter. Or your irresponsible cousin Jameis is in debt to gamblers, who are going to break his legs if he doesn’t come up with the money in 24 hours.

Emergency or not, you need to make sure there aren’t better options. And you must understand exactly what the overall cost of the cash advance will be.

Why You Should Be Cautious

The main reason to be cautious when getting a cash advance is the cost. Once you pay the fees and interest charges, that $500 cash advance could cost you $600 or more. Costs aside, cash advances come with other risks.

If you need a cash advance, chances are you’re already in financial distress. Tapping into your credit card will likely make that worse, especially if you make a habit of it.

Depending on cash advances is the definition of a debt cycle. Getting one with its high costs may provide temporary financial relief, but it gets you into deeper debt unless you pay it back quickly.

There is no quick fix if you’re in that position, but there are long-term solutions. They require planning, budgeting, and determination.

A good first step is to contact a nonprofit credit counseling agency, which has certified counselors who can advise you on programs that could get you out of your debt cycle.

Steps to Take When Cash Advance is the Best Choice

If you’ve weighed all your options and decide to get a cash advance, you need to do a few things. First, make sure you know exactly what the real cost will be.

There are fixed costs, like initiation and handling fees. Interest costs are harder to calculate because you might not know how long it will take to pay back the advance. But be constantly aware that every day you don’t pay it back is another day of adding high interest charges.

Also be aware a cash advance will immediately inflate the credit utilization rate that makes up your credit score. Monitor your credit reports to see what kind of damage that is doing to your overall score.

The bottom line is that if you take a cash advance, it should be considered a high-priority debt. Pay it off as quickly as possible.

Once that’s done, you should start putting money in an emergency fund. That way, you won’t have to consider using your credit card or a payday loan the next time you are short of cash.

Is a Cash Advance Worth the Risk?

The best thing you can say about cash advances is they are convenient. Unlike regular loans where you’re borrowing money from somebody, you are essentially borrowing money from yourself.

So much for the upside of cash advances.

There are a lot of downsides that make getting a cash advance risky. Whether it is worth the risk depends on your situation.

If it’s an emergency situation, it might be worth it. But if you need it to cover routine expenses or it’s an impulse buy, you are digging yourself into a deeper debt hole.

Cash may still be king. Just be wary about how you approach the throne.