How to Calculate the Cost of a Credit Card Cash Advance
Written by: Jacob S.
Published on:
Credit cards offer convenience and financial flexibility when used wisely. They help build credit, provide rewards, and even offer interest-free financing for a limited period. However, they also come with pitfalls—one of the most expensive being cash advances.
According to the Federal Reserve Bank of New York, total U.S. credit card debt stood at $1.12 trillion in Q1 2024. A portion of this debt likely comes from costly cash advances, which can burden consumers with high fees and interest rates. Before withdrawing cash with your credit card, it’s crucial to understand the financial consequences.
What Is a Credit Card Cash Advance?
A credit card cash advance allows you to withdraw cash from an ATM or a bank using your credit card. While it may seem convenient, cash advances come with immediate interest charges and additional fees. Unlike regular credit card purchases, these transactions do not benefit from an interest-free grace period.
A cash advance should not be confused with other types of cash advances, such as:
- Payday-style cash advance loans. These short-term loans charge extremely high interest rates and may trap borrowers in a cycle of debt.
- Employer cash advances. Some employers allow employees to access their paycheck early, typically without interest.
Credit card cash advances, however, are more expensive borrowing options due to their high interest rates and fees.
How Much Does a Cash Advance Cost?
The cost of a credit card cash advance depends on three main factors:
- Interest Rate (APR). Cash advance APRs are significantly higher than regular credit card purchase rates. They typically range from 17.99% to 29.99%.
- Cash advance fees. Most issuers charge a flat fee between 3% and 8% of the amount withdrawn. For example, a 3% fee on a $1,000 advance adds $30 immediately.
- No grace period. Unlike purchases that allow interest-free repayment if paid in full by the due date, interest on cash advances starts accruing the moment the transaction is made.
Example Calculation
Let’s break down the cost of a $1,000 cash advance with a 24% APR and a 3% flat fee:
- Flat Fee: $1,000 x 3% = $30
- Daily Interest: ($1,000 x 24%) / 365 = $0.65 per day
- Total Cost for One Week: (7 x $0.65) + $30 = $34.60
- Total Cost for One Month: (30 x $0.65) + $30 = $49.50
The longer it takes to repay the advance, the more the interest adds up, making it an expensive way to access cash.
How To Calculate Cash Advance Interest
To accurately determine how much interest a cash advance will cost, follow these steps:
- Find Your APR. Check your credit card agreement to find the APR specifically for cash advances.
- Convert the APR to a Daily Rate. Divide your APR by 365 to get the daily interest rate.
- Multiply by the Amount Borrowed. Multiply the daily rate by the amount of your cash advance.
- Multiply by the Number of Days Outstanding. Multiply the daily interest by the number of days until repayment.
Example Calculation
If you take out a $500 cash advance with a 20% APR and repay it in 15 days:
- Daily Interest Rate: 20% / 365 = 0.0548% per day
- Daily Interest Charge: $500 x 0.0548% = $0.27 per day
- Total Interest for 15 Days: $0.27 x 15 = $4.05
Add any applicable cash advance fees to get the total cost of borrowing.
How to Calculate Your Cash Advance Costs
To determine the total cost of a cash advance, use this formula:
Total Cost = (Loan Amount x (APR/100) / 365 x Days Borrowed) + Flat Fee
For example, if you borrow $500 at an 18% APR with a 5% fee and repay it in 10 days:
- Flat Fee: $500 x 5% = $25
- Daily Interest: ($500 x 18%) / 365 = $0.25 per day
- Total Cost for 10 Days: (10 x $0.25) + $25 = $27.50
While this may seem small for short-term borrowing, costs increase rapidly with larger amounts or longer repayment periods.
Check Out Free Credit Card Cash Advance Calculators
To make it easier to estimate the cost of a cash advance, consider using online calculators. Many financial websites offer free cash advance calculators that allow you to input your loan amount, APR, fees, and repayment period to see the total cost instantly.
Here are some popular options:
Using these tools can help you better understand the financial impact of a cash advance before you commit to borrowing.
Alternatives to a Cash Advance
Instead of a costly cash advance, consider these alternatives:
- Use digital payment apps. Apps like Venmo, PayPal, or Cash App allow you to send money electronically, reducing the need for physical cash.
- Plan for cash withdrawals. If you frequently need cash, withdraw extra funds when depositing your paycheck to avoid ATM or cash advance fees.
- Consider a personal loan. A low-interest personal loan may offer better terms compared to a credit card cash advance.
- Ask for an employer advance. Some companies allow employees to access their wages early without interest.
Is There Ever a Good Time to Take a Cash Advance?
In most cases, a cash advance should be a last resort. If you must take one, be sure to:
- Understand all fees and interest rates upfront
- Pay it back as quickly as possible to minimize interest
- Consider alternative options first
A credit card cash advance can be a costly financial decision due to high interest rates, immediate fees, and the lack of a grace period. Understanding the full cost of borrowing and exploring alternatives can help you make smarter financial choices. Before taking out a cash advance, do the math, budget carefully, and look for alternative loan options to access cash.
