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 the opportunity to occasionally borrow money from their credit card when the money is emptying into your bank account?
But withdrawing cash from an ATM using your credit card isn’t something you’ll want to make a habit of doing. The main reason? Banks view it as risky behavior and, in addition to costing you dearly in interest payments and fees, regularly getting cash advances can also hurt 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 emergencies.
Can you use a credit card to withdraw money from an ATM?
Yes, you can use a credit card to withdraw cash from an ATM. Unlike withdrawing money from a debit account, withdrawing money from your credit card is like getting a cash advance – which comes with its own set of costs, including higher interest rates. and higher fees. Although many credit cards allow you to withdraw cash from an ATM, it’s not something you should be used to doing.
Because credit card cash advances are usually applied to another (and much smaller) credit line than your other credit card purchases, they can also disproportionately affect your credit score. All of these circumstances make banks view cash advances as risky behavior, which is why it’s best to reserve cash withdrawal at an ATM using your credit card in the 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 way to borrow money from your line of credit. 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 generally 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 known as cash advance APRs) of up to 25-30%. These interest charges are also generally applied to your account immediately and without the usual 20-day grace period for 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 each month, using cash advances is a virtual guarantee that you will owe a high percentage of interest on the money you have withdrawn. during this 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 upon withdrawal. This can be a breakout rate fee of $5-10 or a percentage of the amount of money you withdraw, whichever is greater. You may also have to pay a surcharge at the ATM if you take the cash advance from a bank that is not also your card issuer.
Besides any fees, it’s important to note that cash advances usually come from a different line of credit than your other credit card purchases. This line of credit is usually much smaller, which means that even a relatively small credit card cash advance can have a much greater impact on your credit utilization rate and, in turn, have a negative impact. on your credit score.
Most banks will consider you a greater credit risk after taking a cash advance, as they are generally only used as a last resort when someone needs money but cannot afford it. withdraw 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 “cash withdrawal” or “cash advance”
- Select the “credit” option (if you are asked to choose between check, debit or credit)
- Enter the amount of money you want to withdraw
- Accept all fees associated with the transaction
- Follow all on-screen prompts to complete the transaction and remember to take your cash and receipt.
Using your credit card at an ATM is not that different from using a debit card, just be sure to follow all the instructions on the machine to withdraw cash, then accept additional fees or charges and collect your money 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 main 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 are the highest interest rate. Since most cash advances come with a cash advance APR of between 20-30% (with no grace period), you’re almost guaranteed to pay it. This means that a $500 cash advance could cost you an additional $150 in interest.
Cash advance fees
Besides the increased interest rates, many banks charge a fee which is either a flat rate of $5 to $10 or a percentage of your withdrawal amount. Be sure to read the fine print and understand the fees you’ll be charged before making a cash advance.
Negative effects on credit ratings
Since cash advances are usually taken from a different, smaller line of credit than your credit card purchases, you can increase your credit utilization rate quite quickly, which can lead to a lower credit score. credit.
In general, most banks consider those who use cash advances to pose greater credit risk, as they are likely using the funds to cover an expense that requires cash but cannot afford. pay with their debit card or current 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 that may cost less and may also help avoid damaging your credit score. Here are some of these 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 bank to quickly withdraw the amount of money you need, or even to make an online payment.
You can also use the checking account associated with your debit card to deposit or cash a check and then use that 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 is also using the app, without needing to make a cash advance. Use these apps to request payments from friends who owe you money or to send payment for anything from a meal to shared living expenses like rent or utilities.
For those who need larger sums of money and cannot afford to withdraw that amount from their checking account, they should consider taking out a Personal loan. Personal loans will allow you to access a lump sum 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
While it may be tempting to use cash advances instead of other payment methods, it’s really something best left to the ER. Due to higher interest rates, fees, and potential damage to your credit score, it’s best to use an alternative payment method like a debit card or even a personal loan whenever possible and avoid unexpected fees and interest payments.
Contributor Larissa Runkle writes frequently on finance, real estate and lifestyle topics for The Penny Hoarder.