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Cash Advance Fee

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What Is A Cash Advance Fee?

A cash advance fee is the amount credit card issuers charge customers when they borrow money against their credit card line of credit. 

Deeper Definition

A cash advance is a short-term loan credit card issuers grant their customers. It is a quick way for cardholders to raise money whenever they are in urgent need of funds. Typically, it can take a few minutes for the loan to be available, and you can withdraw it at an ATM or from a check cashed at a bank, depending on the credit card issuer.

Many credit cards come with the cash advance feature. Depending on the issuer, cardholders can borrow up to 20% or 30% of the available credit limit on the card. Cash advance usually attracts an interest rate that is higher than the standard rate on regular purchases. For instance, the interest rate could be as high as 24%, and it begins to accrue after you receive the loan. Despite the high-interest rate, many cardholders find it attractive due to how easy it is to get.

Credit card issuers charge a fee each time a cardholder takes a cash advance. The exact amount a cardholder pays as a cash advance fee depends on the amount they collected and the credit card issuer’s method to calculate the payment. Most credit card issuers charge either a flat fee or a percentage of the advanced amount. For instance, a credit card company may charge 5%. So if a cardholder takes an advance of $1,000, they will pay $50 as a fee.

Aside from withdrawing money at an ATM, some specific actions may warrant you to pay a cash advance fee. They include but are not limited to:

  • Purchasing money order
  • Using your credit card as overdraft protection
  • Sending money to someone 
  • Purchasing lottery tickets

Generally, it is mandatory for credit card companies to disclose to customers the method they use when calculating the advance fee. You may find the information in your credit card agreement or at the back of your billing statement.

Cash Advance Fee Example 

Linda urgently needs some money to take care of unforeseen expenses before payday. So, she requests a $500 cash advance from her credit card company. Within minutes, the loan is available to her for withdrawal. The credit card company charges a 5% cash advance fee aside from the interest accrued on the loan over time.

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