Enter the desired withdrawal amount, the number of periods (months), and the total amount repaid (including any fees and interest) to calculate the implied simple average interest rate. Note: credit-card cash advances typically accrue interest daily at a stated cash-advance APR (often with no grace period), so this calculator does not compute the contractual APR.
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Cash Advance Interest Formula
The following equation is used to estimate an implied simple average monthly interest rate from the amount withdrawn, the total repaid, and the number of months.
I = (P / AW - 1) * 100 / m
- Where I is the implied simple interest rate (% per month)
- P is the total amount repaid (including principal, fees, and interest).
- AW is the cash taken out at the time of withdrawal.
- m is the number of periods or months.
The variable m represents the number of periods or months.
AW refers to the amount of money that is physically obtained at the moment of making a withdrawal from a bank account or financial institution.
P is the total sum of money that is ultimately repaid for the advance (which may include interest and fees).
Cash Advance Interest Definition
Cash advance interest refers to the interest charged on a cash advance taken from a credit card. When a cardholder withdraws cash from an ATM using their credit card, the credit card issuer typically charges a higher interest rate on that amount compared to the interest rate for regular credit card purchases. This is because cash advances are considered riskier for the credit card issuer, as they are not backed by any collateral and are seen as a form of borrowing money.
In practice, cash-advance interest is usually stated as an APR and accrues daily (often starting immediately, with no grace period). In addition to interest, cash advances may also be subject to additional fees, such as a cash advance fee or ATM withdrawal fee. If you only know the amount withdrawn, the total repaid, and the payoff time, this calculator estimates an implied simple average monthly rate rather than the card’s contractual cash-advance APR.
Cash Advance Interest Example
How to calculate cash advance interest?
- First, determine the initial withdrawal.
Determine how much cash was initially withdrawn or taken out as credit.
- Next, determine the total number of periods.
Determine the number of months before the credit or cash advance is paid off.
- Next, determine the total amount paid.
Calculate the final amount paid for the cash advance.
- Finally, calculate the cash advance interest.
Calculate the interest using the equation above.
FAQ
What are the typical fees associated with a cash advance?In addition to a higher interest rate, cash advances often come with additional fees such as cash advance fees, which are either a flat rate or a percentage of the withdrawal amount, and ATM withdrawal fees if the cash is obtained from an ATM.
How does the interest rate for cash advances compare to regular purchase interest rates?The interest rate for cash advances is typically higher than the interest rate for regular credit card purchases. This is because cash advances are considered riskier by credit card issuers, as they are immediate loans that are not backed by any collateral.
Why are cash advances considered riskier for credit card issuers?Cash advances are considered riskier because they are immediate, unsecured loans. Unlike purchases, which could potentially be returned for a refund, cash advances are instant cash with no collateral, increasing the risk of non-repayment for the issuer.
Can the cash advance interest rate vary between different credit cards or issuers?Yes, the cash advance interest rate can vary significantly between different credit cards and issuers. It is important for cardholders to review their credit card agreement or contact their issuer to understand the specific rates and fees associated with cash advances on their cards.
