But how exactly does a cash advance work and what should you pay attention to? We explain everything you need to know.

What is a cash advance credit card?

A cash advance credit card is simply a card that allows you to withdraw cash. The majority of credit cards offer this feature, but while it can be convenient, it can also be an incredibly expensive way to access cash.

Every time you make a cash withdrawal using your credit card, you are charged a fee. This is often around 3% of the amount you withdraw, but there will also be a minimum charge of around £3.

This means that even if you only withdraw £50, which would equal £1.50 at 3%, you will still be charged the minimum fee of £3.

In addition to this, you will also be charged interest. But, unlike most credit card transactions which have a “grace period”, interest is not charged immediately, interest on a cash advance will be charged from the day of withdrawal.

This applies even if you pay off your entire balance that month.

Additionally, interest rates for cash advances are usually much higher than for purchases, often around 34.9% APR. So overall it’s an expensive way to get money.

If you use your credit card to make a cash withdrawal abroad, you will be charged additional fees on top of the above, called foreign transaction fees. This is usually around 2.99% of the amount withdrawn.

What transactions are classified as a cash advance?

Besides withdrawing cash, if you use your credit card to make any of the following transactions, these may also be considered a cash advance (depending on the card provider):

How much money can I withdraw?

If you use your credit card to withdraw funds, you will usually find that the withdrawal limit is a percentage of your overall credit limit on the card.

So, for example, if you have a credit limit of £3,000, your cash advance limit might be set at 90% of that amount, or £2,700.

And if you use an ATM to withdraw your funds, there is usually a daily cash withdrawal limit of around £300-£500. If you wish to withdraw more than this, you will need to visit the local branch of your card provider and show identification.

Do cash advances affect my credit rating?

Cash advances won’t directly affect your credit score, but they will show up on your credit report.

If you later apply for another form of credit, lenders will check your credit report and may view your use of cash advances negatively, affecting your chances of being approved.

When should I use a cash advance?

A cash advance is an incredibly expensive way to get money and it can also affect your chances of getting credit in the future. This means that you should avoid using a cash advance whenever possible.

The only time you should consider a cash advance is if you desperately need extra funds and have no other way to access cash. If so, it’s essential to do some research first and understand exactly how much you’ll be charged.

What should I consider before taking out a cash advance?

If you need to use a cash advance, check out the following tips first:

What are the alternatives ?

Before taking out a cash advance, it’s worth looking into the alternatives to see if there are more suitable options.

A 0% money transfer credit card, for example, allows you to transfer a lump sum from your credit card to your bank account and use those funds to spend as you see fit.

You won’t have to pay interest, provided you pay off your entire balance before the end of the 0% offer. Note however that there will usually be a transfer fee of around 4%.

Alternatively, if you can pay for goods with a credit card rather than cash, a 0% shopping credit card will allow you to spread the cost of your expenses interest-free over several months, making it a cheaper loan. But be sure to empty your balance before the 0% offer ends.

Paying for purchases with a credit card also gives you important protection through Section 75 of the Consumer Credit Act. This means that if you buy something that costs between £100 and £30,000, your card provider and your retailer are jointly responsible if the item is faulty or does not arrive.

Finally, you could consider a personal loan which will give you access to a fixed sum of money to repay over a fixed period. The most competitive interest rates are usually for loan amounts of £7,500 and above, but it’s important to only borrow what you can afford to repay.