Credit cards have indeed become one of the most important financial tools. With increased features and benefits, credit cards are now more of a necessity than a luxury.
Apart from letting you make payments at various online and offline merchant stores, credit cards also allow you to withdraw cash from an ATM just like a debit card does. However, the credit card cash withdrawal is not that simple. There are a lot of other details that you should consider before you go on with credit card cash withdrawal. This blog will help you find out all that you need to.
What is Credit Card Cash Withdrawal?
In technical terms, credit card cash withdrawal is referred to as ‘Credit Card Advance’. Using this facility, users can withdraw cash from an ATM using their credit card. However there are few points related to credit card cash withdrawal that you must note-
- The main feature of a credit card is to make card transactions; cash withdrawal is just an additional feature of credit card offered by the banks
- Users can withdraw cash from their credit card only upto a permissible limit and not more
- The maximum limit of credit card cash withdrawal may vary from bank to bank
- Users will have to pay additional charges along with interest on the withdrawn amount using a credit card
- Not all banks/credit card issuers offer the facility of credit card cash withdrawal
Charges on Credit Card Cash Withdrawal
Since credit card cash withdrawal is not a basic but an additional feature offered by banks, users have to pay extra charges on withdrawing cash using their credit card. These extra charges are termed as ‘credit card advance fee’. Every time a user withdraws cash using his/her credit card, a percentage of the amount withdrawn is charged as a cash advance fee.
- Generally, banks charge between 2.5% and 3% of the amount withdrawn on every credit card cash withdrawal transaction, subject to a minimum amount of Rs. 300 to Rs. 500 as the cash advance fee
- The cash advance fee will be added to your bill for the next month and will be reflected in your billing cycle
- The cash advance fee also has a finance charge which is applicable at a rate similar to that on the withdrawn amount. This amount will be levied from the date of withdrawal till the date when the amount is paid in full
- It is important to note that even if you perform multiple cash withdrawal using your credit card in one day, you will have to pay the cash advance fee for every individual transaction that you make, based on the withdrawal amount
Wondering if there’s a Credit Card with Zero Charges on Cash Withdrawal?
Well, wonder no more, because Paytm Bank HDFC Credit Card offers zero charges on cash withdrawal of upto Rs. 10,000.
What are Finance Charges on Credit Card Cash Withdrawal?
Credit card cash withdrawal attracts financial charges. These charges vary between 2.5% and 3% of the total amount withdrawn, depending upon individual banks. The actual rate of interest on cash advance varies from bank to bank and from one card type to another. It is important to note that the details related to credit card cash withdrawal are shared with the credit card holder at the time of issuing the credit card. Hence, it is strongly recommended to go through all the terms and conditions before buying a credit card to avoid any unwanted surprises later.
Let’s take a look at some of the factors that define the finance charges on cash advances using a credit card-
- Usage of the credit card
- Frequency of transactions on the credit card
- User repayment behaviour
- Internal interest rates of the bank/credit card issuer
How to Withdraw Cash Using a Credit Card?
Withdrawing cash using a credit card is as simple as it could be. Just like you do with a debit card, you need to follow the same process with a credit card as well. Simply, visit an ATM near you, insert your credit card in the machine and follow the instructions that appear. However, there are a few points that you must note-
- You can make credit card advance at any ATM, irrespective of your credit card issuing bank
- Few banks may charge an additional fee for withdrawing cash from another bank’s ATM
- Certain banks may also have minimum or maximum limit on the amount to be withdrawn using a credit card of another bank on any given day
- You must be aware of the cash limit on your credit card before withdrawing cash from any ATM in order to prevent overuse of the cash limit
- If you withdraw cash outside of your cash limit, your bank may charge an additional fee for overlimit along with the finance charges
Does Credit Card Cash Withdrawal Affect Credit Score?
While there may be a misconception that cash advances affect your credit score negatively, the truth is that cash advances have absolutely no effect on a user’s credit score. This is because the transactions of cash withdrawals are not separately to the credit agencies. They are simply recorded as any other transaction using a credit card. Hence, the credit score is totally neutral to any credit card cash withdrawal.
However, because there are high interest rate charges on cash advances, along with additional fees and charges, levied on a daily basis, it may become difficult for you to keep up with the monthly payments. Eventually, when you fail to make payments of your monthly credit card bills or minimum amount due, your credit score will be affected and will reflect negatively in your credit report. As a solution, if you make timely payments of your credit card bills, your credit score won’t be affected irrespective of the number of cash withdrawals you make.
Advantages of Credit Card Advance
Listed below are some of the benefits of making cash withdrawals using credit cards-
- Credit card cash withdrawals provide instant access to liquid cash. With the easy availability of ATMs, you can have cash at any time and at any place, using your credit card
- Unlike other personal loan sources, withdrawing money from a credit card does not require any documentation or approval process
- If you have a consistent spending and repayment pattern, no record of late or missed payments, and a healthy financial background, you can easily apply for the enhancement of the limit on your credit card
Disadvantages of Credit Card Advance
Explained below are some of the reasons why you should avoid making cash advances, whenever possible-
- Every time that you make a cash withdrawal using a credit card, you need to pay additional finance charges on the amount withdrawn, levied from the date of transaction till the amount is repaid in full
- The interest applicable on cash advances will be charged from the date of transaction till the time the amount is paid in full, which makes it more expensive
- The credit card transactions involving cash advances do not apply for any reward points unlike other transactions
- Cash advances using credit card do not have any interest-free period, which makes it all the more expensive
While it is possible to withdraw cash using your credit card, you should still do it only once in a while. Unless urgent, you should not make credit card cash withdrawals as there is a huge price that you have to pay for such transactions, including finance charges, which is 2.5%-3% of the amount withdrawn, additional fees on withdrawing cash from other bank’s ATMs, etc. Moreover, cash advances do not have an interest-free period, which makes it all the more expensive.