Can You Use a Credit Card at a Cash Machine?

Introduction

Have you ever needed cash but only had a credit card? You might wonder if you can use your credit card at a cash machine (ATM). The answer is yes, but there are important details to know before proceeding. While this option can be helpful in emergencies, it comes with fees and higher interest rates that you should understand before withdrawing money.

What Is a Credit Card Cash Advance?

A credit card cash advance allows you to withdraw money from an ATM using your credit card. It works like borrowing cash from your credit card issuer. However, this service comes with extra costs such as cash advance fees, ATM charges, and high interest rates. Unlike using a debit card, where funds come directly from your bank account, a cash advance uses your available credit.

Cash advances are typically limited to a percentage of your credit limit, so knowing your card’s terms is essential. If you exceed this limit, the transaction will be declined, potentially leaving you in a difficult situation if you urgently need cash.

How Much Does It Cost to Withdraw Cash from Your Credit Card?

Withdrawing cash using a credit card comes with several costs. Cash advance fees are typically a percentage of the withdrawal amount or a flat fee, whichever is higher. ATM owners may charge additional fees, and cash advances often have higher interest rates than regular purchases. Interest starts accruing immediately after withdrawal, as there’s no grace period.

Example: Suppose your credit card issuer charges a 5% cash advance fee or a $10 minimum. If you withdraw $200, the cash advance fee would be $10 (since 5% of $200 is $10). If you withdraw $500, the fee would be $25 (5% of $500). Additionally, if the ATM charges a $3 withdrawal fee, the total cost for the $500 withdrawal would be $28.

How Much Cash Can You Withdraw with Your Credit Card?

The amount you can withdraw depends on your credit card’s cash advance limit, typically set as a percentage of your total credit limit. This limit can vary between credit cards and issuers.

Example: If your credit limit is $5,000 and your card issuer allows a 30% cash advance limit, you can withdraw up to $1,500. However, keep in mind that fees and interest will reduce the amount you can access without exceeding your limit.

Before using this service, check if your card issuer has any restrictions on where you can withdraw cash. Some issuers limit withdrawals to certain ATM networks, which may reduce convenience and increase costs.

Hidden Costs and Considerations

Besides the visible fees, several hidden costs come with cash advances. Daily interest accumulation can cause the debt to grow quickly if you don’t repay the balance immediately. Foreign transaction fees may also apply if you withdraw cash abroad, adding to the total cost.

Another critical factor to consider is how a cash advance affects your minimum monthly payment. Your credit card issuer may apply a higher minimum payment requirement if you carry a cash advance balance, making monthly budgeting more challenging.

Impact on Your Credit Score

Taking out a cash advance can affect your credit score. It increases your credit card balance, raising your credit utilization ratio. This could lower your credit score, especially if you don’t repay the amount quickly. Lenders may see frequent cash advances as a sign of financial trouble.

Additionally, missing payments after a cash advance can lead to penalties, higher interest rates, and long-term damage to your credit profile. Make sure you have a repayment plan before using this service.

When to Use a Credit Card for Cash

Using a credit card at an ATM should be a last resort, reserved for emergencies. If possible, explore alternatives like borrowing from friends or family, using personal loans, or dipping into savings before considering a cash advance.

Emergencies such as unexpected medical expenses or urgent travel needs may justify using a credit card for cash. However, avoid making this a regular practice to maintain financial stability.

Conclusion

While using a credit card at a cash machine is possible, it comes with significant costs and potential impacts on your credit score. Withdraw cash only when absolutely necessary and pay off the amount quickly to avoid high interest charges. Understanding the fees, interest rates, and credit score implications can help you make informed financial decisions and avoid long-term debt.