What is Cash Advance?

Definition

Cash advance refers to the act of a cardholder using a credit card to withdraw cash from a bank or ATM. Typically, cash advances incur higher interest rates and fees, and the withdrawn amount is immediately added to the credit card's outstanding balance.

Origin

The concept of cash advance emerged with the widespread use of credit cards, dating back to the mid-20th century. As credit cards became more popular, banks introduced the cash advance feature to offer more convenient services.

Categories and Features

Cash advances are mainly divided into two types: withdrawals through bank counters and ATMs. Both types share the common feature of incurring high interest rates and fees. Bank counter withdrawals are typically used for large cash needs, while ATM withdrawals are more convenient for small cash needs.

Case Studies

Case Study 1: A cardholder needed emergency cash while traveling and withdrew $500 using a credit card at an ATM. Although it solved the immediate need, the high interest and fees resulted in a total cost exceeding $600. Case Study 2: An employee needed temporary cash due to company financial process issues and withdrew $2000 through a bank counter cash advance. While it solved the short-term cash flow problem, it also incurred high financial costs.

Common Issues

Common issues include the burden of high interest and fees, and the impact on the credit card limit. Many cardholders mistakenly believe that cash advances enjoy the same interest-free period as regular purchases, but in reality, cash advances usually do not have an interest-free period, with interest accruing from the day of withdrawal.