How to Calculate Interest on A Credit Card Cash Advance
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Reviewed by Calculator Editorial Team
Calculating interest on a credit card cash advance is essential for understanding the true cost of borrowing money. Unlike purchases, cash advances typically charge interest from the moment you receive the funds, not when you make a payment. This guide explains how to calculate the interest, what factors affect the cost, and how to avoid hidden fees.
What is a credit card cash advance?
A credit card cash advance is a loan you take out using your credit card. Unlike regular purchases, cash advances are typically available 24/7 at ATMs or through your bank's website. The funds are deposited directly into your bank account, and you must repay them within a set period, usually 45 days.
Cash advances are useful when you need quick access to cash but don't want to wait for a bank loan. However, they come with higher interest rates and fees compared to regular purchases. Many credit cards charge a flat fee for cash advances, in addition to the interest.
How interest is calculated
The interest on a credit card cash advance is calculated based on the card's APR (Annual Percentage Rate) and the daily interest rate. Here's how it works:
- The APR is the annual interest rate charged on your balance.
- The daily interest rate is calculated by dividing the APR by 365 (or 366 for leap years).
- Interest is charged on the outstanding balance each day until the balance is paid in full.
Daily Interest Rate Formula:
Daily Interest Rate = (APR / 100) / 365
For example, if your card has a 25% APR, the daily interest rate would be approximately 0.0685% (25% ÷ 365). This means you'll earn about 0.0685% interest on your outstanding balance each day.
Step-by-step calculation
To calculate the total interest on a credit card cash advance, follow these steps:
- Determine your cash advance amount.
- Find your card's APR.
- Calculate the daily interest rate using the formula above.
- Multiply the daily interest rate by the number of days the advance is outstanding.
- Multiply the result by the cash advance amount to get the total interest.
Total Interest Formula:
Total Interest = Cash Advance Amount × (Daily Interest Rate × Number of Days)
This formula gives you the total interest charged on your cash advance. Remember that many credit cards also charge a flat fee for cash advances, which should be added to the total cost.
Example calculation
Let's say you take a $500 cash advance with a credit card that has a 25% APR and charges a $25 flat fee. You repay the advance in 30 days.
- Cash advance amount: $500
- APR: 25%
- Daily interest rate: 25% ÷ 365 ≈ 0.0685%
- Number of days: 30
- Total interest: $500 × (0.000685 × 30) ≈ $10.28
In this example, the total interest would be approximately $10.28. Adding the $25 flat fee, the total cost would be $127.28.
| Description | Amount |
|---|---|
| Cash advance amount | $500.00 |
| Interest (30 days) | $10.28 |
| Flat fee | $25.00 |
| Total cost | $535.28 |
How to avoid costly fees
While credit card cash advances can be convenient, they often come with high fees and interest rates. Here are some tips to avoid costly fees:
- Compare APRs: Shop around for credit cards with lower APRs for cash advances.
- Check fees: Some cards charge a flat fee for cash advances, while others charge a percentage of the advance amount.
- Pay in full: If possible, repay the cash advance in full within the grace period to avoid interest charges.
- Use ATMs wisely: Some ATMs charge additional fees for cash advances. Look for no-fee ATMs or use your bank's website for cash advances.
- Consider alternatives: If you need quick cash, explore other options like personal loans or overdraft protection.
Always read the fine print on your credit card agreement to understand all fees and interest rates before taking a cash advance.
FAQ
What is the difference between a credit card cash advance and a regular purchase?
A credit card cash advance is a loan, while a regular purchase is a charge that is added to your statement balance. Cash advances typically have higher interest rates and fees, and the interest starts accruing immediately.
How long do I have to repay a credit card cash advance?
Most credit cards require you to repay cash advances within 45 days. If you don't, you may be charged additional fees or interest.
Can I use a credit card cash advance to pay off another credit card?
Yes, you can use a cash advance to pay off another credit card, but be aware that you'll be paying interest on both cards. It's often better to transfer balances instead of taking a cash advance.
What happens if I can't repay a credit card cash advance?
If you can't repay the cash advance, you may be charged late fees, additional interest, or even damage to your credit score. It's important to budget for cash advances and repay them on time.