Is sending money with a credit card considered a cash advance?

Is Sending Money With a Credit Card Considered a Cash Advance?

While we typically think of using a credit card for purchases, other transactions can fall under the category of a cash advance, often incurring extra fees and higher interest rates. Understanding what constitutes a cash advance is crucial for managing your credit card responsibly and avoiding unexpected costs. Sending money, while seemingly different from withdrawing cash at an ATM, can sometimes be treated as a cash advance depending on the method used.

Credit card issuers define cash advances as obtaining cash directly or indirectly from your credit line. Obviously, this includes ATM withdrawals and convenience checks. But it extends beyond these obvious examples. Transferring funds via wire transfer is almost always classified as a cash advance. This is because the money is being moved directly into an account and is readily available as cash.

The grey area arises with peer-to-peer (P2P) payment platforms like PayPal and Venmo. While these platforms are primarily used for sending money to friends and family or paying for goods and services, the way you fund the transaction determines whether it’s a purchase or a cash advance.

If you link your credit card to PayPal or Venmo and use it to pay for a good or service from a registered merchant on the platform, it’s typically processed as a purchase. This means you’ll be subject to your standard purchase APR and won’t incur cash advance fees. However, if you use your credit card to send money directly to a friend or family member, or use it to “top up” your balance on these platforms, it’s highly likely to be coded as a cash advance by your credit card issuer. This is because the recipient receives funds they can use freely, similar to receiving cash.

Therefore, before using your credit card on P2P platforms, it’s crucial to understand how the transaction will be classified. Check your credit card agreement or contact your issuer to confirm how they treat P2P transactions. While convenient, using your credit card to send money directly to individuals via these platforms can be an expensive option due to cash advance fees and higher APRs. Consider alternative methods like debit cards or bank transfers for these types of transactions to avoid unnecessary costs. Being aware of these nuances can save you money and help you manage your credit card more effectively.