A cash advance or cash-advance fee is a charge assessed for certain transactions made with a credit card. Generally, the term "cash-advance" means any situation whereby you withdraw cash from your credit card instead of charging purchases on it. This is done by executing a transaction (in person, online, or over the phone) where you can access funds borrowed against your line of credit before those funds are deposited into your account (generally, this will be an amount of your credit limit that is at least $100). When you borrow money against a line of credit and then pay it back within a set period (for example, 7 days), the transaction is called a cash advance.
What are transactions considered cash advances?
This behavior includes:
- Borrowing money from your credit card issuer and paying it back by another means such as pre-authorized debit or check within six months; otherwise, any transaction which gives you access to more than 50% of your available credit limit can be seen as a withdrawal. Typically, if your total available balance is $1,000 and you're not close to your -line of credit limit ($5,000), transactions for more than $500 will be classified as cash advances.
- You are tapping into available credit through a pre-authorized debit to your bank account, which can result in hefty overdraft fees if you don't have sufficient funds in your account. If the pre-authorized payments are for payroll or recurring monthly bills, they most likely won't be considered as cash advances, provided that there are sufficient funds in your account at all times.
What is the difference between a cash advance fee and an interest rate?
Cash advance fees are one of two ways that credit card issuers charge interest on these transactions. The other way is by adding extra interest onto the outstanding balance, but it is important to note that both types of charges vary among credit card issuers. If you pay interest on both your cash advance fees and outstanding balance, the total interest being charged will be more significant than if one charge was being assessed.
Regardless, most banks limit how much they can charge in cash advance fees per transaction. Again, this amount varies among different institutions (it is common to see it capped off at $2 or $4). This means that if you make multiple cash advances within a short period (for example, three separate transactions within an hour), the sum of all fees cannot exceed this fee cap for any given transaction.
What is the difference between paying interest on your cash advance fees or paying interest only on the outstanding amount?
The main difference is that if interest rates are applied to both options, it can result in significantly more money being charged in interest than when only the higher of these two amounts are used.
When do I have to pay back my cash advances?
The terms within your credit card agreement will state how long you have before you must begin paying back the borrowed amounts taken out as a cash advance. This time frame can range from a few days to a few weeks depending on the issuing bank.
When you receive your credit card statement for this period, there will be a section that details all transactions, including cash advances--including the amount borrowed and when it must be paid back by.
What should I do if I have problems paying back my cash advance?
If you have legitimate reasons for being unable to pay back your cash advance in full or on time, contact your credit card issuer right away. Depending on the situation, they may give you a temporary extension before applying any late fees or interest charges to your account.
If your inability to repay this loan was due to an emergency ( you lost your job, had unexpected medical bills, etc.), and you notified your credit card issuer right away, they would not charge you for this cash advance.
If you realize that it will be challenging to pay back this loan on time or in full, ask your issuer what options are available. For example, if the outstanding balance is only $20, but the fee is $38.75, some issuers can offer a partial-payment agreement and waive the TFI fee so long as it's paid off by a specific date. Again, most credit card companies want to keep their customers happy and will accommodate their needs when possible.
How do I avoid paying cash advance fees?
As we mentioned earlier in this article, there is usually an annual limit on how many cash advance transactions you could make each month (usually between $300 and $500 but sometimes higher depending on your credit limit).
If you need to make more than this amount in cash advances, it may be time to consider switching cards or looking into a new loan that can help you meet these demands. Your credit card issuer cannot charge you interest on the borrowed amounts if there isn't additional money spent after paying off your cash advance balance--which is why this type of transaction should only be used as "a last resort."
Banks will reward customers with good spending habits by offering them lower APR rates on purchases or promotional GIFT CARDS for gas or groceries, resulting in real savings.
Avoiding TFI fees is directly linked to your credit card behavior. If you have a history of making cash advances when it's not needed or the outstanding balance isn't paid off in full, be prepared to pay these fees any time you need additional money up to your credit limit.
