What is a cash advance on a credit card? Pros and cons explained

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A cash advance is cash you withdraw against your credit card limit—at an ATM, through your bank, or via your card app. The amount is added to your card balance like a short-term loan, but there is one key difference: interest starts the same day. There is no grace period, no matter when your next bill is due. Banks offer a cash advance limit ranging from 20-40 percent of your credit limit. So, if your credit card limit is Rs 1 lakh, you can withdraw between Rs 20,000-40,000 in cash.

Cash advances are among the costliest forms of credit on a card. Monthly interest typically runs between 1.99 percent and 4 percent (about 25-48 percent a year) and begins immediately. Additionally, banks also levy a one-time cash advance fee of 2-3 percent with a minimum charge, often Rs 300-Rs 500. If you withdraw Rs 10,000, you might pay Rs 300-Rs 500 upfront, then daily interest until every rupee of the advance is cleared.

GST also applies on fees and interest, nudging the effective cost even higher. If you take the cash mid-cycle and repay only at the statement due date, you’ve paid interest for every day in between.

When an unexpected cash-only expense hits—hospital deposits, repairs, or a landlord who won’t accept UPI—you can access money in minutes with your ATM PIN. Many banks also let you push a cash advance straight to your savings account inside the app, which can be faster than arranging a new loan. Used once, repaid quickly, and kept rare, it can bridge a real gap.

Interest does not pause when you make part-payments; it keeps accruing on the remaining advance until it is fully repaid. Cash advances don’t earn rewards or cashback, and some banks suspend the interest-free period on new purchases if any part of the advance remains unpaid—so your next swipe could also start accruing interest from day one. Frequent cash withdrawals can look like financial stress on your profile and may hurt future loan terms or trigger lower limits.

Before tapping an ATM, check if your bank offers a lower-rate “loan on card” that converts a portion of your limit into fixed EMIs at a better rate and with no cash-advance fee. A pre-approved personal loan or a small overdraft on your savings account can also be cheaper and easier to track. If family or employer salary advances are possible, they’re usually cost-free and won’t affect your credit utilisation.

It's best to treat a cash advance as a last resort. It’s fast, but the combination of immediate interest, one-time fees, taxes, and the risk of losing your purchase grace period makes it expensive.