What is a cash advance on your credit card and how much does it cost?

Even though a cash advance could be a convenient way to cover a temporary cash shortfall, you should be aware of the extra costs you’ll need to pay. The cash advance interest rate is often higher than if you used your credit card to make a purchase. Interest rates offered by financial institutions on cash advance transactions can exceed 20 per cent. This is much higher than the average purchase rate of between 15 and 17 per cent on a credit card. 

Besides this, there’s usually no interest-free period for cash advances. This means interest is calculated from the day you make the transaction, unlike purchases that can have interest-free days where you can pay it off without being charged interest. If you find a credit card offering an interest-free period on cash advances, you should check the revert rate, which is the rate charged on the transactions after the interest-free period; these can be as high as 27 per cent. 

Besides the cash advance interest charges, you may also be charged a fee for cash advances that could cost you between $2 and $10. Some card issuers may not charge you a fixed fee but instead charge you a percentage of the total transaction amount, which could range anywhere from 1 to 10 per cent.

Sometimes, if you withdraw cash from an ATM that isn’t part of your card network, you could also incur an additional ATM fee due to the ATM belonging to another financial institution.

If you travel overseas and use your card for a cash advance, it will attract an even higher cash advance fee from your bank.  Additionally, the local country’s ATM fees will also apply to international cash advance transactions.

The maximum amount of money you can withdraw using your credit card isn’t usually the same as your credit limit. There is likely to be a daily cash advance limit set by your credit card issuer. This means there is a cap on how much cash you can withdraw in one day.  For example, this set amount could be up to $800 or $1000 per day, beyond which you’ll have to wait until the next day. Sometimes, this daily limit is also set as a percentage of your credit limit. Get in touch with your card issuer or read the Product Disclosure Statement for more information regarding your cash advance limit and charges. 

The total money you withdraw from your credit card in a billing cycle and the accrued interest will be reflected in your credit statement at the end of the month. However, you won’t earn any reward points for cash advance transactions if you have a rewards or travel credit card.