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In this article:
- 1. Using a Convenience Check
- 2. Buying Lottery Tickets or Gambling
- 3. Buying Foreign Currency
- 4. Wire Transfers
- 5. Money Orders
- 6. Person-to-Person Money Transfers
- 7. Overdraft Protection
Many credit card issuers allow you to use your credit limit to access cash. This is known as a cash advance and is more expensive than using your credit card for goods and services.
Certain "cash-like" purchases are also considered cash advances, including depositing a convenience check, purchasing a money order and sending money through certain apps. Learn which transactions are actually cash advances so you can avoid them when possible.
7 Transactions That Are Cash Advances
Using your credit card to withdraw cash from the ATM is the most obvious type of cash advance. However, there are a number of transactions that may not immediately seem like they're cash advances. Recognizing these cash equivalent transactions is important if you want to avoid high interest and costly fees (which may also be treated as a cash advance).
1. Using a Convenience Check
Some credit card companies send convenience checks in the mail. You may have the option of using the check to transfer a balance or get cash in your bank account. When you name yourself as the payee and cash the check or deposit it into your bank account, it's treated as a cash advance.
2. Buying Lottery Tickets or Gambling
Buying lottery tickets and gambling don't directly involve using physical cash, but they do offer the ability to win cash prizes. Credit card issuers often treat gambling purchases as cash equivalent transactions. This includes online gambling, race track wagers and casino gaming.
3. Buying Foreign Currency
While you can make purchases in other currencies with no problem (though you may be charged a foreign transaction fee), purchasing foreign currency, including cryptocurrency, with your credit card is considered a cash-like transaction. If you're traveling and need to exchange currency, use a debit card or cash from your bank account to avoid cash advance fees. You can also purchase traveler's checks ahead of time, but you'll need to use a debit card or cash.
4. Wire Transfers
Wire transfers involve moving money from one bank to another. If you use a credit card, you're essentially using the credit card issuer's funds to transfer money. For this reason, the wire transfer is treated as a cash advance.
5. Money Orders
Purchasing a money order with a credit card is treated as a cash advance. Some money order locations don't allow you to use a credit card and instead require you take out a cash advance first and then purchase the money order.
6. Person-to-Person Money Transfers
Using your credit card to send money through a money transfer app like Venmo, Paypal and Cash App may be considered a cash advance by your card issuer. Because you're essentially using your credit card to transfer money, it's very similar to withdrawing cash.
7. Overdraft Protection
You can use your credit card for overdraft protection for your checking account to avoid overdraft fees. However, credit card overdraft protection is treated as a cash advance since your card issuer is essentially transferring cash to prevent overdrafts.
Frequently Asked Questions
On a credit card, a cash advance is a cash withdrawal against your credit limit. It's like a short-term loan from your credit card. You can get a cash advance by withdrawing money from an ATM using your PIN or by visiting the bank in person.
Certain cash-like transactions are also treated as cash advances. These transactions involve using your credit card to purchase or transfer cash to yourself or someone else.
Your credit card statement will list your cash advance transactions separate from purchases and balance transfers if you have any.
Cash advances are more expensive than purchases because they carry a higher annual percentage rate (APR) and a fee. It's not unusual to see a cash advance APR near 30%. Cash advances are charged a fee—either a flat amount, such as $10, or a percentage of the transaction, usually 5%.
You may pay additional fees depending on the transaction. For instance, if you withdraw cash from an ATM, you'll likely also pay an ATM fee. For wire transfers, you'll also pay a wire transfer fee.
Cash advances don't have a grace period, where you can avoid paying interest by paying your balance in full by the due date. Instead, you'll start accruing interest on cash advances right away. You may also lose the right to dispute purchases made with cash withdrawn from an ATM or purchased with a convenience check.
Cash advances can be avoided if you're diligent. Be sure to read through your credit card agreement to understand which transactions are treated like cash advances. It may not be obvious. Generally speaking, here are some ways to avoid a cash advance on your credit card.
- Build an emergency fund to use when unexpected cash needs arise.
- Consider borrowing from friends or family if you have a small, short-term need and can pay them back quickly.
- Use a savings account instead of a credit card for overdraft protection.
- Use your bank account, debit card or cash rather than a credit card for money transfer apps and other cash-like transactions.
The Bottom Line
Without being aware of cash-equivalent transactions, you could unknowingly use your credit card for a transaction that's actually considered a cash advance. Even when it's convenient, cash advances aren't a cost-effective way to use your credit card.
If you need to improve your credit to access more affordable financing options, start by checking your credit report and credit score for free. This will help you figure out how to build a positive credit history and more favorable borrowing options in the future.
