Many people wonder if they can use a credit card to withdraw cash from an ATM. The answer is yes, most credit cards allow cash withdrawals through a transaction known as a cash advance. However, while cash advances can be convenient, they may come with higher costs and risks compared to regular credit card purchases.

When you take cash from an ATM using your credit card, you’re drawing from your credit line instead of from a bank account, and many credit card issuers consider this a high-risk transaction.

Here’s what you need to know about withdrawing cash with your credit card and how to manage associated costs.

Understanding Cash Advances

A cash advance is essentially a short-term loan that allows you to withdraw cash from your credit line. When you’re in a pinch and need cash quickly, a credit card cash advance can be tempting. Unlike a traditional credit card purchase, a cash advance lets you withdraw cash directly from your credit card account, giving you fast access to funds.

But it’s important to understand the costs and limitations that come with taking this step, since cash advances tend to be one of the most expensive ways to access cash.

When you take out a cash advance, the amount doesn’t just add to your balance – it also comes with a unique interest rate known as the cash advance APR. The cash advance APR may be much higher than the APR applied to regular purchases on your credit card, often starting as high as 24 to 29 percent. This higher interest rate can increase your total cost of borrowing if you don’t quickly repay the cash advance in full.

Unlike regular purchases, some credit card issuers may not offer a grace period for cash advances, so your interest starts accruing the same day you withdraw cash. A cash advance means interest starts accruing immediately, making it one of your more costly options if you can’t promptly repay the amount.

Checking Your Credit Card Agreement

Because of the one-two punch of fees and high interest rates, cash advances should probably be used sparingly – for example, only for short-term or emergency needs. Cash advances don’t usually offer the flexibility and lower costs associated with other credit card transactions, and if you leave them unpaid, they can add up faster than you think because of daily compounding interest.

That’s why it’s so important to review your credit card’s terms if you’re thinking about making a cash advance withdrawal. Make sure you understand the exact fees involved. In many cases, other methods like a personal loan or borrowing from family or friends may give you a more affordable way to get access to the cash you need without paying high fees and interest.

PIN Requirements for ATM Transactions

To withdraw money from an ATM with your credit card, you’ll need a credit card PIN (Personal Identification Number). If you don’t know your PIN, you can contact your credit card company to set or reset it before you make your transaction. Knowing your PIN is essential for cash advance withdrawals – you will not be able to access cash without it.

Fees Associated with Credit Card ATM Withdrawals

Cash advances come with significant fees, typically structured in the following two parts:

  • Cash advance fee: Card issuers charge either a flat fee (usually about $10) or a percentage of the withdrawal amount, often around 3 to 5 percent.

  • ATM transaction fee: Many ATMs charge an additional fee for cash advances, which increases the cost of your transaction.

Cash advances usually appear as their own line item on your credit card statement, making it easy to identify and track these transactions and their associated fees.

Daily Limits on ATM Cash Advances

When you use a credit card at an ATM, keep in mind that there is always a cash advance limit.

In fact, credit card cash advances are usually capped by a daily limit, which may be significantly lower than your total credit limit. For instance, if your credit limit is $5,000, your daily cash advance limit might only be $500.

The limit varies by issuer, so check your card terms to understand the specific limit that applies to you. Your limit is usually only a small percentage of your overall available credit, which is why it’s so much lower. You can check this limit on your credit card statement or by contacting your credit card company.

This is important – if you go over your credit card balance or cash advance limit, you can end up paying even higher fees and could also experience a negative impact on your credit scores if you don’t quickly repay the advance.

Interest Rates on Cash Advances

One of the biggest costs associated with a cash advance is the cash advance APR, which is usually higher than your credit card’s APR for other purchases. Cash advance transactions begin to accrue interest immediately, so you’ll start accruing interest the same day as your withdrawal. Most credit card companies offer no grace period for cash advances, so your interest compounds daily until you repay the balance in full. This higher interest rate makes cash advances more expensive, at least most of the time, than regular credit card purchases.

Effects on Credit Scores and Credit Utilization Ratio

Taking a cash advance may seem like a quick solution in an emergency, but it can impact your credit score in ways you might not expect. While cash advances don’t directly show up as a specific item on your credit report, they do affect the factors that determine your score – especially your credit utilization ratio.

Your credit utilization ratio is a major component of your credit score. This ratio measures the amount of credit you’re using compared to your total credit limit. Credit scoring models, like FICO and VantageScore, place a heavy emphasis on credit utilization because it reflects how much of your available credit you’re relying on. Generally, it is suggested to keep this ratio below 30 percent – high utilization signals to lenders that you may be overextended and could struggle to repay debt.

When you take out a cash advance, the amount you withdraw is added directly to your credit card balance. And since cash advances don’t come with a grace period, interest charges start accruing immediately, meaning your balance may increase faster than with other purchases. If you don’t pay off the advance right away, your credit utilization ratio could climb, especially if you’re already carrying a balance on your card.

Here’s an example:

  • Let’s say you have a credit card with a $5,000 limit and usually maintain a balance of $1,000. Your credit utilization would be 20 percent, which is generally considered healthy.

  • If you take out a cash advance of $1,000, your new balance would be $2,000, which raises your utilization to 40 percent.

  • This higher ratio can potentially lower your credit history since lenders often view credit utilization above 30 percent as risky.

Alternatives to Credit Card ATM Withdrawals

Since cash advance transactions can be expensive, you might consider these alternatives instead:

  • Debit card: Withdrawing from a checking account using a debit card lets you avoid cash advance fees and interest charges.

  • Payment app: Apps like Cash App allow you to transfer money for a small fee, which is generally lower than the costs associated with a cash advance withdrawal.

  • Personal loan: If you need enough money to cover larger expenses like medical bills, a personal loan usually has a lower APR than a cash advance APR and comes with fixed repayment terms.

  • Convenience check: Some credit card companies issue convenience checks that let you get cash directly from your credit card account at a slightly lower rate than an ATM cash advance.

  • Borrow from friends or family: While borrowing from loved ones isn’t always ideal, it can be a way to access cash without accruing higher interest rates and charged interest.

Key Takeaways

Using a credit card to withdraw cash from an ATM is a viable option, but it may come with high costs related to fees, a cash advance APR, and the potential for interest charges to start accruing immediately.

If you’re thinking about using a credit card for cash from an ATM transaction, make sure to carefully weigh all your options before moving forward and, if possible, use alternatives to avoid falling into debt. If you decide that a cash advance withdrawal is your best option, make sure to pay back the balance as quickly as possible to help safeguard your credit scores and long-term financial health.