For most credit card users, being able to withdraw cash from an ATM seems like a revelation. After all, who wouldn’t want to take advantage of being able to borrow cash from their credit card now and again when money gets low in your bank account?
But getting cash from an ATM using your credit card isn’t something you’ll want to get in the habit of doing. The main reason? Banks see it as a risky behavior, and besides costing you a lot of money in interest payments and fees, regularly getting cash advances can also damage your credit score. We’ve got the details on what you need to know about using your credit card at the ATM and why cash advances from your credit card issuer should only be used in cases of emergency.
Can You Use a Credit Card to Get Cash at an ATM?
Yes, you can use a credit card to get cash from an ATM. Unlike withdrawing money from a debit account, withdrawing cash from your credit card is equivalent to getting a cash advance — which comes with its own unique set of costs, including higher interest rates and increased fees. Although many credit cards will allow you to withdraw cash from an ATM, it isn’t something you should get in the habit of doing.
Because credit card cash advances are typically applied to a different (and much smaller) line of credit than your other credit card purchases, they can also disproportionately affect your credit score. All of these circumstances make banks see cash advances as a risky behavior, which is why withdrawing cash from an ATM using your credit card is best reserved as a worst-case scenario, and not just something you do instead of using your debit card.
What Is a Cash Advance?
A cash advance is a means of borrowing cash against your credit line. Not all credit card companies offer cash advances, but many do. The key thing to keep in mind is that cash advances are often treated differently than normal credit card use, and they typically cost more than a regular ATM transaction. And there will be a cash advance limit.
For example, many cash advances come with higher interest rates (also called a cash advance APR) that can be as much as 25-30%. These interest charges are also usually applied to your account right away and without the usual 20-day grace period of other credit card transactions. You should study these details more closely on your credit card statement.
This means that even if you pay your credit card bill in full every month, using cash advances is a near-guarantee that you will owe a high percentage of interest on the cash you withdrew in that billing cycle, which can easily translate into credit card debt.
In addition to the high cash advance APR, a credit card company will often charge a cash advance fee at the time of the withdrawal. This may be a flare rate fee of $5-10 or a percentage of the amount of cash you withdraw, depending on which is greater. You may also have to pay an ATM surcharge if making the cash advance from a bank that isn’t also your card issuer.
Besides all the fees, it’s important to note that cash advances typically come from a different line of credit than your other credit card purchases. This line of credit is usually much smaller, meaning that even a relatively insignificant credit card cash advance can have a much larger impact on your credit utilization ratio, and in turn, negatively impact your credit score.
Most banks will view you as a greater credit risk after you make a cash advance, since they are generally only used as a last resort when someone needs cash but can’t afford to withdraw it from their checking account.
How to Use Your Credit Card at the ATM
If you want to withdraw money from an ATM using your credit card, follow these steps:
- Insert your credit card into the ATM
- Enter your credit card PIN — make sure you have one before you start the process.
- Select the option for “cash withdrawal” or “cash advance”
- Select the “credit” option (if asked to choose between checking, debit, or credit)
- Enter the amount of cash you’d like to withdraw
- Accept any associated fees that come with the transaction
- Follow all prompts on the screen to complete the transaction and don’t forget to take your cash and receipt.
Using your credit card at an ATM isn’t all that different from using a debit card, just be sure to follow all the prompts on the machine for withdrawing cash, then accept the additional fees or charges and collect your cash and receipt.
What to Consider Before Taking a Cash Advance
Higher interest rates, cash advance fees and negative effects on your credit score are the three biggest results of taking out a cash advance on credit.
Higher Interest Rates
There are a few things to consider before taking out a cash advance. The first of these are the higher interest rates. Since most cash advances come with a cash advance APR that’s between 20-30% (without a grace period), you’re almost guaranteed to pay it. This means that a cash advance of $500 could cost you an extra $150 in interest.
Cash Advance Fees
Besides the increased interest rates, many banks charge a fee that’s either a flat rate of $5 to $10 or a percentage of your withdrawal amount. Be sure to read the fine print and understand what fees you’ll be charged, before making a cash advance.
Negative Effects on Credit Scores
Since cash advances are usually taken from a different, smaller credit line than your credit card purchases, you can increase your credit utilization ratio relatively quickly, which can result in a decreased credit score.
In general, most banks consider those who use cash advances to be a greater credit risk since they are likely using the funds to cover an expense that requires cash but that they cannot afford to pay using their debit card or checking account. All of these things can negatively impact your credit score, and make it harder to apply for other forms of credit in the future.
Alternatives to a Cash Advance
If you’re considering taking out a cash advance, it’s worth exploring other options which may cost less and can also help avoid damaging your credit score. Here are a few such alternatives to cash advances.
If you need cash and can afford to withdraw it from your account, a debit card is by far your best option. You can use your debit card at an ATM or a bank to withdraw the amount of cash you need quickly, or even to make a payment online.
You can also use the checking account associated with your debit card to either deposit or cash a check, and then use this money to make a purchase or payment.
Peer-to-Peer Payment Apps
Apps like Venmo or Paypal (among others) allow you to pay back a friend or family member who also uses the app, without the need to take out a cash advance. Use these apps to request payments from friends who owe you money or to send a payment for anything from a meal, to shared living expenses like rent or utilities.
For those who need larger sums of cash and can’t afford to withdraw that amount from their checking account should consider taking out a personal loan. Personal loans will allow you to access a lump sum of cash immediately upon approval, without the higher interest rates (most personal loans have interest rates around 10%) or the potential damage to your credit score. Most personal loans also have a more reasonable grace period and repayment schedule than cash advances.
For Emergencies Only
Although it might be tempting to use cash advances in lieu of other payment methods, it’s really something best left for emergencies. Due to the higher interest rates, fees and potential damage to your credit score, you’re better off using an alternative payment method like a debit card or even a personal loan whenever possible and thereby avoiding any unexpected fees and interest payments.
Contributor Larissa Runkle frequently writes on finance, real estate, and lifestyle topics for The Penny Hoarder.