Small business credit cards are primarily used for making purchases, but most will also allow you to perform a cash advance (not to be confused with a merchant cash advance). And while some may think of a credit card cash advance as being similar to withdrawing money with an ATM card, there are many important, and potentially costly differences.
Here are eight things that you really need to know about credit card cash advances before you ever consider doing one:
1. Credit card cash advances usually have higher interest rates.
Most small business credit cards will have a higher interest rate for cash advances than for purchases or balance transfers. This higher interest rate represents the increased risk of default associated with customers that are desperate for cash.
2. Most credit cards impose costly cash advance fees.
In addition to paying a higher interest rate on your credit card cash advances, your card issuer will likely impose large fees for the transaction. It’s not uncommon for a small business credit card to charge a cash advance fee of 5% or $15 whichever is greater.
3. There’s no grace period on cash advances.
The most affordable way to use your credit cards is to avoid interest charges by paying your monthly statement balances in full. But when it comes to cash advances from your credit card, there’s no grace period. Every time you make a cash advance, you’ll incur interest charges on that amount from the day of the transaction until you pay it off.
4. You can also incur foreign transaction fees.
Presumably, many credit card users conduct cash advances not because they have run out of cash, but because they are in a foreign country and they don’t have any other means to access the local currency. But just like purchases made outside of the United States, your foreign cash advances can still be subjected to a foreign transaction fee, usually 3%.
5. Don’t forget ATM fees.
In addition to the high interest rates, cash advance fees, foreign transaction fees and no grace period, your credit card cash advances can still incur any ATM fees charged by the owner of the machine. If you’re counting, that’s a total of three different fees that you could potentially be charged by a single transaction, and that’s before you figure the cost of interest charges.
6. You must set a PIN first.
Most credit card cash advances occur at ATMs, and you are required to input a PIN before the transaction is approved. But unlike an ATM card, you won’t receive a PIN number in the mail by default after you receive a new credit card. To set your PIN, you will have to contact your card issuer. Not creating a PIN is a great way to avoid accidentally making a cash withdrawal.
7. You can set your account’s cash advance limit.
Another way to limit the costs of a credit card cash advance is to set limits on the account. To do this, contact your card issuer and specify a maximum dollar amount that can be authorized. In fact, you can set your card’s cash advance limit ot $0, in order to prevent any cash advances from being authorized.
8. There are plenty of alternatives to credit card cash advances.
The easiest alternative to using your credit card to access cash is to use a debit or prepaid card with ATM access. If you need to make a payment to an individual or company that doesn’t accept credit cards, then you can consider one of the many electronic payment systems that accept credit cards. Often, these systems will charge a fee of up to 3% to the payor or the payee, but this is far less than all of the interest charges and fees that can be part of a credit card cash advance. And if a merchant will accept debit cards but not credit cards, you could use your credit card purchase prepaid debit cards from many retailers.
This article was originally written on January 29, 2018 and updated on January 30, 2020.
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