Can Credit Cards be used at the ATM?

Can I use Credit Cards at the ATM?

The short answer is yes, you can use your credit card at the ATM. However, unless you want to pay exorbitant fees and interest, then you really do not want to be using your credit card to withdraw at the ATM. Borrowing money at the ATM using your credit card is called a cash advance, a type of personal loan that lets you borrow straight from the bank.

Cash advances usually come with high-interest rates and fees and don’t proceed like normal credit card transactions. Although you can use your credit card at most other ATMs, we do not recommend using your credit card to withdraw money. The interest and fees can add up quickly so you should be absolutely sure that you need to withdraw money from the ATM.

Outlining exactly how cash advances work and how much they cost you is important. Cash advances should only be used in a pinch and cheaper options should be considered first. Also, if you are trying to rebuild your credit, cash advances can make lenders think you are irresponsible with your money. 

What is a Cash Advance?

A cash advance is a short term cash loan that you can obtain at an ATM or bank. Unlike a cash withdrawal, you have to pay back all the money you withdraw with your credit card. You can think of a cash advance as you buying cash with your credit card that you have to pay back at a later date. There are usually limits on the amount of cash you can withdraw and it is not recommended for regular use. Cash advances can cost you a lot of money and should almost never be the solution to your cash problems.

Why are Cash Advances Bad?

On cash advances, you’ll have to pay a fee based upon how much you owe. Cash advance fees are usually worded as such, “ 5% or $10 of the amount of each cash advance, whichever is greater.” This means you will have to pay $10 on all cash withdrawals less than $200 and 5% of the amount withdrew greater than $200. 

You also pay significantly higher interest on cash advances. Common APRs for cash advances is 24.99% to 29.99% which is much higher than the interest rates for purchases or balance transfers. There is also no grace period so you will instantly be subject to high-interest payments. 

Cash Advances also paint a bad picture for credit bureaus and lenders. Cash advances get added to your credit card as debt, and if your credit card debt is high relative to your available credit your credit score will decrease. Not only that, if you take out cash advances frequently you could be flagged as a risky borrower by banks' risk models, which can make it significantly harder to borrow in the future. 

How much will a Cash Advance cost you? 

There are many fees to consider with a cash advance but how much will it actually cost you. Let’s work under the assumption that you are borrowing $500 at an APR of 29.99% with a cash advance fee of 5% or 10$, whichever is greater. Right as you borrow, you immediately owe the bank $525 because of the 5% fee on the money you borrowed. On top of that, since the yearly rate is 29.99%, divide that by 365 to get the daily interest rate of .0008 percent. This rate may not seem like a lot, but it would be an extra $12 in fees you would have to pay. In total excluding ATM fees, you would have to pay an extra $37, which could have been put towards any other purchase

Alternatives to Cash Advance

One alternative to a cash advance is to overdraft your checking account, a typically cheaper option. If you have a debit card, always withdraw using that because even an overdraft will cost less than a cash advance. It will also do less damage to your financial health in the long run.

A personal loan from the bank also is a better option because it usually comes with a lower interest rate to pay back. If you ever need cash, this could be a better option as it will also not hurt your credit score as much as long you can pay it back.

Conclusion

Yes, you can use your credit card at ATM,s but it is highly recommended against doing so. There are many other alternatives that can save you money and help you keep your financial health. Using your credit card at an ATM is only a last resort option when you need cash.