The primary purpose of a credit card is to make card transactions that allow the user to pay the amount later. Cash withdrawal is an additional feature offered by banks with credit cards. The technical term for credit card cash withdrawal is ‘Credit Card Advance’.
Suppose you face a short-term financial crisis at a point in time and need cash urgently. If a loan or asking for help from a known person is not a viable option, you can utilise the cash advance facility on your credit card at an additional cost.
A credit card cash advance facility is a mini and instant financing facility. It may be handy for some extra cash at the end of the month when someone is out of money. The credit cardholder can get instant funds without the hassle of the documentation process and waiting for approval. Every bank/credit card issuer does not offer the facility of credit card advances.
How to use a credit card for withdrawal
Credit cardholders can withdraw money through cash advance in a few different ways:
- At an ATM: The credit cardholder can withdraw money at an ATM using your card’s ATM PIN. The PIN can be generated at the ATM if you have not generated it earlier.
- In-person: You can visit your bank’s nearest branch for the cash withdrawal and request a cash advance against your credit card.
- Convenience check: The bank also offers a credit card advance facility through convenience checks. The cardholder can write a cheque to himself to cash it.
Though the credit card holder can withdraw cash from any ATM, it is better to use your bank’s ATM to avoid any additional charges. Find the maximum cap on the credit card cash withdrawal facility.
This feature of cash withdrawal using a credit card comes with specific terms and conditions that the user must know. Here are these factors to consider.
The credit card withdrawal limit
The cardholder can withdraw cash from using a credit card up to an allocated limit. The card issuer sets a limit to the cash advance facility. It is a part of the overall credit limit on the card. Say the credit card limit is Rs. 80,000 per month. The bank may set a limit of Rs.25,000 for credit card cash withdrawal. The maximum credit card limit for cash withdrawal varies from bank to bank. This limit is set on the credit card based on the card holder’s credit history, income and repayment capability.
The cardholder has to pay additional charges for the credit card withdrawal. Cash withdrawal using credit cards can be proved a costly deal if not used as an informed user. Here are the charges these withdrawals attract:
- Cash advance fee: This fee is charged every time the cardholder uses the cash advance facility. The fee can be between 2.5 to 3% of the transaction amount. It is reflected in the credit card bill statement.
- Cash advance APR: Cash advances attract a higher interest rate as compared to purchases using credit cards. An individual can look for an introductory offer on credit cards. The bank may offer 0% interest on cash advances as the introductory offer for a fixed period, say six months. Later on, the issuer will charge the APR accordingly.
- Late payment fee: It is the fee if you do not repay the entire bill. Late payment charges are charged on the outstanding amount. It can be between 15% and 30%. Look for bank credit cards charging a relatively low-interest rate for overdue interest.
- ATM or bank fee: When the credit card is used for cash withdrawal at an ATM or a bank branch, the cardholder needs to pay a minimal fee. It can be as low as Rs.15 – 25. There can be a limit to using this withdrawal facility for free, say ATM transactions; up to 3 transactions can be free.
Understand the whole of these aspects better to use the credit card withdrawal facility prudently. Advantages of credit card advances are:
- Get instant cash whenever you need it.
- No documentation at all
- No prior credit approvals are required.
Credit Score and Credit Card Cash Advances
A credit report does not have a separate line for cash withdrawal on a credit card. But it can harm your credit score like other lines of credit if the withdrawn amount is not paid on time. It is the percentage of available credit on the card, hence a part of your credit utilisation ratio. It should not be converted into unmanageable debt as you need to maintain a high credit score to get credit from the bank whenever required.
Credit card cash withdrawals are easy without any fuss. Go to an ATM and take needed cash within the assigned limit without any special approval from the card issuer. Pay it back on time, along with the interest and fee that come with cash withdrawals.
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