Short on cash but need it fast? Your credit card might seem like a quick solution. While primarily used for purchases, many people overlook the option to withdraw cash directly from their credit card. But before you head to the ATM, it’s crucial to understand the potential costs and consequences of credit card cash advances. From hefty fees to sky-high interest rates, there are significant drawbacks to consider. Let’s explore the reality of withdrawing cash using your credit card and help you make informed financial decisions.
What is Credit Card Cash Withdrawal?
A credit card cash advance allows cardholders to withdraw cash using their credit card at an ATM. This feature is an additional service offered by banks, as credit cards are usually used for direct transactions rather than cash. Cardholders can withdraw cash up to a certain limit and must repay the amount along with any interest and fees.
Not all credit cards offer this feature, and the withdrawal limits and finance charges can differ between cards. It’s important for credit card users to understand the specific terms and conditions related to cash withdrawals on their cards before making a transaction.
Credit Limit vs. Cash Limit
Your credit limit is the total amount you can spend on a credit card. Your cash limit is the specific amount you can withdraw as cash using that card. The cash limit is usually a portion of your overall credit limit, typically between 20% and 40%. For example, if your credit limit is Rs. 1 lakh, you might be able to withdraw Rs. 20,000 to Rs. 40,000 as cash.
Banks usually tell you your cash limit when they give you the card. It’s important to know that cash limits can differ between card types and customers. Your cash limit isn’t fixed and can change over time. Banks may adjust limits based on how you use the card, your payment history, and other financial information. You’ll be informed about any changes.
How to Withdraw Cash From Credit Card?
- Locate an ATM: Look for an ATM that accepts credit cards. This is usually indicated by the credit card logos displayed on the machine.
- Insert Your Credit Card: Follow the usual ATM instructions to insert your card.
- Select Cash Advance: Look for options like “Cash Advance” or “Cash Withdrawal.”
- Enter the Amount: Specify the amount you want to withdraw. Remember to stay within your cash advance limit.
- Enter Your PIN: You’ll need your credit card PIN for this transaction.
- Confirm: Review the transaction details, including the amount and fees, before confirming.
- Collect Cash and Card: Take your cash and credit card from the ATM.
Credit Card Cash Withdrawal Charges
Withdrawing cash using your credit card comes with various costs such as:
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Cash Advance Fees
Every time you withdraw cash, you’ll be charged a cash advance fee. This fee is a percentage of the amount you withdraw and appears on your next bill, along with the money you borrowed and interest. This fee applies each time you withdraw cash, even if it’s on the same day. -
Interest on Cash Advances
Besides the cash advance fee, you’ll also pay interest on the money you withdraw. This interest is calculated monthly and starts from the day you withdraw the cash until you pay it back completely. Most banks charge between 2.5% and 3.5% interest per month on cash advances, but this can vary. -
Over-Limit Fees
It’s important to know your cash withdrawal limit and stay within it. If you go over the limit, you’ll be charged an over-limit fee.
Tips:
- Use your own bank’s ATM to avoid extra fees.
- Check your daily cash withdrawal limit before withdrawing.
- While cash advances won’t affect your credit score directly, making on-time payments is important to avoid high costs and protect your credit rating.
- Frequent cash advances might make some banks view you as a less valuable customer, which could impact your chances of getting credit card upgrades or higher spending limits in the future.
Benefits of Credit Card Cash Withdrawal Feature
Immediate Access to Cash
One of the main benefits of a credit card cash advance is the immediate availability of cash. With ATMs operating around the clock and located almost everywhere, you can withdraw cash whenever and wherever you need it.
No Approval or Paperwork Required
Unlike personal loans or other types of credit, getting a cash advance doesn’t require bank approval or additional documentation. You can simply use your credit card at an ATM to access the funds.
Adjustable Limits
If you consistently use your credit card responsibly and avoid late payments, you may be eligible for a higher credit limit. When your credit limit increases, your cash withdrawal limit will also be adjusted accordingly.
Disadvantages of Credit Card Cash Withdrawal
Reward Points
One downside of cash advances is that they don’t earn reward points. No matter how much you withdraw, you won’t receive any rewards for these transactions, unlike regular credit card purchases.
Interest-Free Period
Credit card cash withdrawals lack an interest-free period. Interest begins accruing from the moment of the transaction and continues to build up until the debt is fully repaid. This means that the longer it takes to repay the withdrawal, the more interest you will end up paying.
Fees and Charges
As mentioned earlier, using a credit card for cash withdrawals comes with extra costs. Every time you make a withdrawal, a cash advance fee is applied. Additionally, finance charges start accumulating immediately from the transaction date and continue until you repay the full amount.
Closing Thoughts
While credit card cash advances offer quick access to cash, it’s essential to approach this option with caution. The associated fees, high-interest rates, and lack of a grace period can quickly turn a seemingly convenient solution into a financial burden. It’s crucial to carefully review the terms and conditions of your credit card before opting for a cash advance. Remember, this feature should be reserved for genuine emergencies rather than becoming a regular source of funds.
For smaller, everyday purchases, consider using a RuPay credit card linked to UPI, like the Jupiter Edge CSB Bank Credit Card. This can provide a more cost-effective alternative to cash advances, while also offering benefits like 0.4% cashback on UPI spends, helping you maximise your spending power. By understanding the costs and consequences of cash advances and exploring alternative options, you can make informed decisions to protect your finances.
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