Credit card cash withdrawal: Top 5 things to consider
In moments of financial need, accessing funds quickly can seem like a good solution. However, using a credit card to withdraw cash often comes with unexpected consequences.
In moments of financial need, accessing funds quickly can seem like a good solution. However, using a credit card to withdraw cash often comes with unexpected consequences. While it might appear to be a simple option, the costs and terms associated are important to understand before you proceed. This guide covers the basic factors you should consider before choosing to use your credit card to withdraw funds.
High interest rates start immediately
Unlike regular transactions, cash advances do not come with an interest free grace period. This means you start accumulating interest as soon as the money is withdrawn. Generally, this is higher than those for standard purchases. This ranges from 2.5% to 3% per month. If you don’t pay it back quickly then the interest can quickly spiral and make a small withdrawal into a larger deficit.
Moreover, you’ll also draw a cash advance fee which is a percentage of the total amount withdrawn or a fixed fee. This is additional to the interest and can add up quickly.
They are usually lower than your credit limit
In many cases, the cash limitation is restricted to 20% to 40% of the total available amount. Suppose if your credit limit is ₹1,00,000, you may only be able to access ₹20,000 to ₹40,000 in cash. Before you make a transaction, it’s important to confirm your available cash withdrawal amount to avoid any disappointment or extra fees.
Influence on credit utilization and credit score
When you withdraw cash on your credit card, the amount adds to your overall balance. As your balance increases, so does the proportion of your available credit. A higher credit utilization ratio can negatively impact your credit score as it signals to lenders that you may be over-relying on credit. Even if you repay the cash advance on time, using it frequently can hurt your score. This is because consistently depending on cash withdrawals may lower your creditworthiness over time.
Repayment options are not automatically available
Unlike regular purchases, cash withdrawals do not come with the option to convert them into easy monthly EMIs by default. Some credit card providers may allow you to convert the amount into EMIs but this typically requires you to call the customer service centre and request the conversion.
Failure to pay the bill can result in accumulating interest charges. To manage this, you can use tools like a credit card EMI calculator. It helps you understand how much your repayment might cost monthly if you convert it into instalments.
No reward points
Using your credit card for everyday expenses typically allows you to earn benefits that can be exchanged for different perks. However, this doesn’t apply when you opt for cash withdrawals.
In this case, despite facing steep interest rates and additional fees, no rewards are granted. This can feel like a drawback for those who typically enjoy added value from routine card usage. Before opting for a cash advance, it’s crucial to assess whether the absence of bonuses combined with the other costs is worth it in the long run.
Read More: National One Cent Day: Celebrating the Legacy of America’s Smallest Coin
Exploring other alternatives
Credit card cash advances offer quick access to funds during emergencies which makes them a convenient option when time is a priority. However, it’s also worth knowing other options that may be more cost effective in the long run. Some of these include:
- Personal loans with lower interest rates
- Emergency funds or savings
Even if these options are not always readily available, they can often be more cost effective. However, if you have decided to go ahead with a cash withdrawal then make sure that you have a repayment plan in place. The faster you repay the withdrawn amount, the less you will incur in interest charges. Use it only when it’s absolutely necessary and try to manage the debt as efficiently as possible. Ultimately, staying informed and planning ahead can help you make smarter financial calls.
FAQs
- Can every cardholder use the option of cash withdrawal by default?
Not all accounts have this setting turned on—some require manual activation via digital channels.
- Is there a daily limit on how much can be withdrawn on your credit card?
Yes, the permissible amount varies depending on the issuer, your account history and available balance.
- What happens if I delay repayment on the cash withdrawal?
You’ll see growing liabilities that can affect your overall financial health and increase future borrowing costs.
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