How to Calculate Interest on Cash Advance on Credit Card

Calculating interest on a cash advance from your credit card is essential for understanding the true cost of borrowing money. This guide explains the process step-by-step, provides a calculator tool, and offers practical advice for managing cash advances.

What is a Cash Advance?

A cash advance is a short-term loan provided by your credit card issuer when you don't have access to your card. It's typically available through your bank's ATM or the issuer's website, and you'll receive the funds within minutes.

Cash advances are convenient but come with higher interest rates than purchases made with your credit card. This is because they're considered a loan rather than a purchase, and the interest is calculated differently.

Cash advances are often used for emergencies, but they should be used sparingly due to their high interest rates. Always consider other borrowing options before taking a cash advance.

How is Cash Advance Interest Calculated?

The interest on a cash advance is typically calculated using the daily balance method. Here's how it works:

The interest rate is applied to the outstanding balance each day.
The daily interest is calculated as: Daily Interest = (Daily Interest Rate / 365) × Outstanding Balance
The total interest for the period is the sum of daily interest charges.

Formula: Cash Advance Interest = (Daily Interest Rate / 365) × Outstanding Balance × Number of Days

Cash advance interest rates are usually higher than purchase interest rates. For example, if your credit card has a 20% APR (Annual Percentage Rate), the cash advance rate might be 25%.

Key Factors Affecting Cash Advance Interest

APR: The annual percentage rate determines the base interest rate.
Outstanding Balance: Higher balances accrue more interest.
Time: The longer you take to repay, the more interest you'll pay.
Grace Period: Some cards offer a grace period (typically 21 days) where no interest is charged if the balance is paid in full.

Worked Example

Let's calculate the interest on a $500 cash advance with a 25% APR over 30 days.

Convert APR to daily rate: 25% ÷ 365 ≈ 0.0685% per day
Calculate daily interest: $500 × 0.000685 ≈ $0.34 per day
Total interest: $0.34 × 30 ≈ $10.20

In this example, you would pay approximately $10.20 in interest for a $500 cash advance over 30 days.

Day	Daily Interest	Cumulative Interest
1	$0.34	$0.34
15	$0.34	$5.10
30	$0.34	$10.20

FAQ

How is cash advance interest different from purchase interest?

Cash advance interest is typically calculated daily and uses a higher interest rate than purchase interest. This is because cash advances are considered loans rather than purchases.

Can I avoid interest on a cash advance?

Yes, if your credit card offers a grace period (typically 21 days), you can pay the full balance within this period to avoid interest.

What happens if I don't pay my cash advance?

If you don't pay your cash advance, interest will continue to accrue daily until the balance is paid in full. Late fees may also apply.