Has there ever been an instance where you needed cash really quick? Your first idea might be to withdraw cash from your credit card. Every time you withdraw from your credit card, you will be charged a credit card cash advance fee that can range from 2 – 5% of the total amount transacted, that is known as credit card cash advance fee.
It’s also widely believed to be a high-interest, short-term credit card issuer loan. Yes, you can borrow money against your credit card, but you will end up paying a hefty fee. However, there might be conditions where you really need the money and want to understand how credit card cash advance fees work? So here’s an easy-to-understand guide for you.
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What is Credit Card Cash Advance Fee?
A credit card cash advance fee on your credit card is a charge incurred when you use your credit card to withdraw cash from an ATM or bank. It’s not like your regular credit card purchases, cash advances help you with immediate cash access. The only catch is, they come with higher costs and specific terms that make them one of the most expensive forms of credit.
There are numerous transaction methods you can opt for credit card cash withdrawal including:
- ATM withdrawal: Simply by using your credit card PIN, you can withdraw the desired amount within the credit card limit. In case of no PIN, register your request for the same. The process may take a few business days.
- Convenience checks: Another method of credit card cash withdrawal is by writing a check to yourself and depositing it to the bank.
- Over-the-counter transactions: Visit your bank to request for credit card advance cash.
Every above-stated process is subject to a credit card cash advance fee which is different from the interest on cash withdrawal from credit card.
The generic percentage of advance fee can be anywhere between 2 – 5% of cash withdrawal, which may vary depending on credit card issuer. However, flat fee could also be alternatively levied on you irrespective of the money transacted. Whichever stands greater, shall be followed.
For example:
| Scenario | One- month repayment | Twelve- month repayment |
|---|---|---|
| Principal | ₹41,500.00 | ₹41,500.00 |
| Cash Advance Fee (5% since its greater than flat fee) | ₹2,075.00 | ₹2,075.00 |
| Interest (1/12 months) | ₹1,054.27 | ₹7,307.34 |
| Total | ₹44,629.27 | ₹50,882.34 |
| Total Interest | ₹1,054.27 | ₹7,307.34 |
| Total Paid (Principal + Fee + Interest) | ₹44,629.27 | ₹50,882.34 |
In the one-month repayment scenario:
You pay ₹41,500 in principle, ₹2,075 in cash advance fees, and ₹1,054 in interest, totalling ₹44,629.
In the twelve-month repayment scenario:
You pay ₹41,500 in principle, ₹2,075 in cash advance fees, and a total of ₹7,307 in interest over the twelve months, totalling ₹50,882.
Typically, banks impose a fee ranging from 2.5% to 3% of the withdrawn amount, with a minimum charge of Rs. 300 to Rs. 500. This fee will appear on your next billing statement.
In addition to the cash advance fee, the withdrawn amount also incurs a finance charge at a rate similar to that of regular purchases. This charge is applied from the date of the cash withdrawal until the full amount is repaid.
It’s important to note that if you make multiple cash withdrawals in a single day, you will incur credit card cash withdrawal charges for each transaction based on the respective withdrawal amounts.
How to Withdraw Money from a Credit Card Without Charges?
You cannot withdraw money from a credit card without charges, but you do have flexibility to choose how much to pay. Compare the charges imposed by different financial institutions and banks beforehand. Interest on cash withdrawal from credit card or the charges imposed can be negotiated by explaining the circumstances to your credit card issuer.
Factors to be Considered to Get A Cash Advance
- Interest rate: Compared to any other annual percentage rates, the credit card cash advance has a higher annual percentage rate. Interest on cash withdrawal from credit card does not come with the privilege of grace period, the interest accruing starts on the same day.
- Impact on credit score: Credit card cash withdrawal does not directly impact your credit score but if you fail to repay the money, it has the potential to make a negative impact which may reduce your credibility for future loans.
- Evaluate alternatives: Credit card cash advance should only be opted when every other door is closed. Prioritize exploring other options in order to lessen the impact of fees and interest associated with credit card cash withdrawals.
- Long-run reliance: Once chosen, you may tend to rely on this method whenever in need of urgent cash, which is not a favorable situation in the long-run. Try not to loop yourself in the debt cycle by monitoring emergency funds.
3 Preferred Alternatives to Cash Advance
- Borrowing from family/ friends: Instead of jumping into the hassle of credit card loans, try to arrange money from your family members or friends. This will cut down the interest and additional fee imposed.
- Save emergency funds: Always try to monitor your money for any unforeseen situations. Put aside a substantial sum of money that will last you for at least three to six months.
- Personal loan: If the amount required is really big, you can go for a personal loan as well. When compared to credit card advance cash, the interest rate and cost of personal loan are lower.
Credit card cash advance sure is a lifesaving alternative in the short run, but considering the future, try not to be a part of this loop. Do not let it hover over you in financially-ill situations. Try to go with some alternatives mentioned so save yourself from the financial distress.
Disclaimer: Nothing on this blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. You should not use this blog to make financial decisions. We highly recommend you seek professional advice from someone who is authorised to provide investment advice.
