If you’re short on the cash needed to make an important purchase, taking out a cash advance on your credit card can be a convenient option. Not only are cash advances a quick and easy way to withdraw funds from the card you already have in your wallet, but you also don’t need a fresh credit check to access those funds.
But before making this move, it’s important to understand that the terms for cash advances on your credit card tend to be quite different from using it to purchase goods and services. Cash advance interest rates are typically higher than credit card purchase interest rates — and they start accruing immediately.
To help you make an informed decision about whether to take out a cash advance, let’s explore what they are, how they work, the rates and fees involved, and some key differences between cash advances and regular credit card purchases.
Key Takeaways
- A cash advance is when you withdraw cash from your credit card or make cash-like transactions.
- You can access cash advances from an ATM or a bank teller.
- Cash advances are expensive due to fees and higher interest rates that start immediately.
- If you must use a cash advance, pay it off as soon as possible to minimize costs.
What is a cash advance?
A cash advance is when you borrow cash or make cash-like transactions using your credit card instead of using it to make a purchase, offering quick access to cash with no credit check required. Cash-like transactions include wire transfers, foreign or virtual currencies, lottery tickets, gaming chips or bets at kiosks or online casinos.
What is a cash advance interest rate and how does it work?
Cash advances are treated as short-term borrowing and carry a higher interest rate than standard credit card purchases. While purchase rates on credit cards typically range from 12.99% and up to 20.99%, cash advance rates are much higher, typically between 22.99% to 27.99% at major Canadian banks. That’s why they’re best used for emergencies or when you have no lower-cost borrowing options available. You’ll find your rates listed in your cardholder agreement.
Lastly, unlike regular purchases, cash advances have no interest-free grace period and start accruing interest immediately.
| Feature | Credit card cash advance | Regular credit card purchase |
|---|---|---|
| Interest rate | Higher (22.99% to 27.99%) | Lower (12.99% to 20.99%) |
| Grace period | None (interest starts immediately) | 21-day grace period |
| When interest starts | Day of withdrawal | Only if balance not paid in full |
There’s no interest-free grace period with a cash advance
While you’re probably used to enjoying a minimum 21-day, interest-free grace period when making regular purchases on your credit card, it’s important to note there’s no such grace period when it comes to cash advances. In other words, you’ll pay interest on your cash advance from the day of the transaction until the day you pay off the full amount. Interest is calculated and compounded daily, meaning each day's interest is added to your balance, and you're then charged interest on that new, higher amount the next day.
Here's how to calculate cash advance interest on a card with a 22.99% APR (which equals 0.063% daily):
| Cash Advance Amount | Daily Interest Calculation | Daily Interest | 10 Days | 30 Days | 60 Days |
|---|---|---|---|---|---|
| $100 | $100 × 0.063% | $0.06/day | $0.60 | $1.89 | $3.78 |
| $200 | $200 × 0.063% | $0.13/day | $1.26 | $3.78 | $7.56 |
| $300 | $300 × 0.063% | $0.19/day | $1.89 | $5.67 | $11.34 |
| $500 | $500 × 0.063% | $0.32/day | $3.15 | $9.45 | $18.90 |
| $1,000 | $1,000 × 0.063% | $0.63/day | $6.30 | $18.90 | $37.80 |
How to calculate the daily rate: 22.99% ÷ 365 days = 0.063% per day
What is a cash advance fee?
Along with paying high interest, you may be charged a cash advance fee when you withdraw cash using your credit card. In Canada, a cash advance fee is typically 3 to 5 per cent of the amount withdrawn or a minimum of $5 to $10 (whichever is greater). You may also be subject to other fees, such as an ATM fee and/or a currency conversion fee (if withdrawing foreign currencies). Fees vary among cards and card issuers, so review your cardholder's agreement to find out the exact fee that applies to you.
Here’s an example of a calculation for cash withdrawal from a credit card that has a cash advance fee of 3.5 per cent or $10 minimum and an ATM fee of $2:
| Cash Advance Amount | Fee Calculation (3.5% or $10 min) |
ATM Fee | Total Cost (Excluding interest charges) |
|---|---|---|---|
| $100 | 3.5% × $100 = $3.50 (minimum $10 applies) |
$2 | $12 |
| $200 | 3.5% × $200 = $7.00 (minimum $10 applies) |
$2 | $12 |
| $300 | 3.5% × $300 = $10.50 | $2 | $12.50 |
| $500 | 3.5% × $500 = $17.50 | $2 | $19.50 |
| $1,000 | 3.5% × $1,000 = $35.00 | $2 | $37 |
How to get a cash advance from a credit card
The cash advance spending limit on your credit card is only a portion of your card’s total limit, so know your limit before you take out an advance. There are a few different ways you can get a cash advance from your credit card:
- ATM withdrawal: The most recognized way to receive a cash advance is by using your credit card to withdraw money at an ATM. Simply insert the card, enter the PIN assigned to your account and select the “cash advance” or “withdrawal” option. There may be a fee for using an ATM as well.
- In person at the bank: You can apply for a cash advance in person with a bank teller at your nearest branch (tip: remember to bring photo identification). You can receive the advance in cash or have it transferred to your savings or chequing account.
- Transferring funds from your credit card to your chequing account: Moving funds from your credit card to your chequing or savings account is also considered a cash advance. That’s the case whether you’re making the transfer online, over the phone or at a branch.
- Making cash-like transactions: Cash advances typically apply for purchases like wire transfers, foreign or virtual currencies, lottery tickets, gaming chips or bets at kiosks or online casinos. Check your cardholder agreement to know what applies.
- Bill payments: Bill payments can also be considered cash-like transactions, so arrange these payments as preauthorized charges with the merchant to ensure they’re treated as regular purchases.
- Convenience cheques or promotional cheques: A convenience cheque is a cheque your credit card issuer sends you that lets you borrow money against your credit card limit — a cash advance in cheque form. Knowing your cash advance spending limit is important if you’re writing a credit card cheque; if you write it for an amount that exceeds your limit, the cheque will be declined and returned, and a dishonored payment fee will be charged.
Remember that you can always get in touch with your card issuer if you’re unsure about whether a transaction will be treated as a regular purchase or cash advance.
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Help Me ChooseHow to pay back a cash advance on a credit card
The best way to avoid paying high interest on a cash advance is to pay off your entire credit card balance as quickly as possible. But if you can only make partial payments, it's important to know how they’re applied to your balance. This determines how quickly you'll pay down your cash advance balance.
Understanding how payments get applied to your balance
How your payment is applied to your credit card balance depends on where you live and which bank you use:
In Quebec, payments are applied to your balance in this specific order (required by law):
- First, to any required installment plan payments
- Next, to the debt with the highest interest rate (typically cash advances)
- Then to other debts in decreasing order of interest rate
This means Quebec residents benefit from faster payoff of high-interest cash advances.
Outside Quebec, banks have more flexibility in how they apply your payments. They can choose between two payment allocation methods:
- Proportional method: Payment is split proportionally across all balance types (purchases, cash advances, balance transfers), based on their share of your total balance
- Highest-to-lowest method: Like Quebec's rule, payments go to the highest interest rate first
Most major Canadian banks use the proportional allocation method. This means when you make a minimum payment:
- First, it covers installment-plan payments
- Then interest charges (excluding interest on installment plans)
- Then any fees
- Finally, the remaining payment is split proportionally across your balance. So, your cash advances get paid down proportionally to their share of your balance. If cash advances make up 20 per cent of your balance, they only get 20 per cent of your payment – even though they carry the highest interest rate.
Because cash advances typically carry the highest interest rate on your credit card, how your payments are allocated matters. Outside Quebec, if your bank uses proportional allocation and you're only making minimum payments, that high-interest cash advance balance will stick around for much longer and cost you more in interest.
Check with your credit card issuer to understand their specific payment allocation method, as this can impact how quickly you pay down cash advances.
Are cash advances worth it?
Credit card cash advances can be a useful tool, but advance rates are typically higher than purchase rates, so cash advances should be treated as a last resort, rather than a habit. Be sure to fully understand the cash advance interest rates and fees in your cardholder agreement so you’re able to responsibly use your credit card cash advance.
| Benefits of cash advances | Drawbacks of cash advances |
|---|---|
| Easy and fast access to cash through ATMs or branches | Higher interest rates than regular credit card purchases |
| No application or credit check needed if you have available credit | Interest starts immediately (no interest-free grace period) |
| Available on most Canadian credit cards | Cash advance fees apply (flat fee or % of amount) |
| Useful when cash is the only payment option | Increases credit use which may affect your credit score |
| Convenient for urgent short-term needs | Can be expensive and hard to repay if carried |
| Best used when: you have an emergency, no lower-cost option (like a line of credit), and can repay the balance quickly | Avoid when: you expect to carry the balance or have other borrowing options available |
FAQs about cash advances
Do cash advances affect credit scores?
Yes, cash advances can indirectly affect your credit score, because they increase your credit balance and use, which can lower your credit score — especially if the balance is high or carried for a long time. That’s why it’s important to pay your balance back as soon as you can.
Why have I been charged a cash advance fee on my credit card?
You're being charged a cash advance fee because you withdrew cash from your credit card (via ATM, bank teller, or convenience cheque), transferred money from your credit card to your bank account, or made another cash-like transaction. Unlike regular purchases, interest starts accruing immediately with no grace period. To stop accumulating charges, pay off the cash advance balance as soon as possible. If you don't recognize the transaction or believe the charge is incorrect, contact your card issuer immediately to review your account.
Are gift cards considered cash advances?
A gift card purchased with a credit card is usually treated as a standard purchase, unless categorized as a “cash equivalent” by the card issuer. Reloadable cards, direct financial institution purchases and prepaid credit cards often trigger high fees and interest rates.
Can cash advance fees be waived?
Cash advance fees are rarely waived once transactions have been made; however, if you have questions or concerns about credit card transactions, fees or repaying your balance, always contact your card issuer.
Can I increase my cash advance limit?
Yes, you can usually request a cash advance limit increase by asking your bank to increase your overall credit card limit or to adjust your daily ATM withdrawal limits.
Can I pay back a cash advancement in installments?
Although not recommended due to high, immediate interest and fees, you can pay back a cash advancement in installments.
Do you earn rewards points for cash advances?
No, rewards don’t apply to cash advances. If you’re a fan of earning cash-back credits or points on your credit card, stick with regular purchases.
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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.