If you ever need money quickly and are in a difficult situation, a Credit Card Advance (also called Credit Card Cash Withdrawal) can help you out. You can get money from a credit card and repay it little by little. The good thing is that you can get money quickly without having to deal with paperwork or waiting for the bank's approval process. This cash limit is a certain percentage of the total money you can spend with the card.
A cash advance may seem appealing and might seem a good choice if you need money immediately, while ensuring a limited amount of money is kept in your bank account. The cash advance option solves the resource problem.
In contrast to a debit card withdrawal, where you are accessing money from your account, a cash advance is essentially a loan from your credit card company charged to your account. Since cash advances frequently have a higher annual percentage rate and a transaction fee, you will need to be responsible for paying the cash advance fees on a credit card. Additionally, there is a limit on how much you can advance, which further limits the usability of this option.
Why Credit Card Cash Advances?
Let’s assume you’re faced with a short-term financial crisis and are in urgent need of cash. If taking a loan or asking a friend for money is not a viable option, advance cash can help you tide over the situation. If your bank account does not have enough funds to take care of your needs, you can withdraw cash from your Credit Card, although at an additional cost. Most Credit Cards also come with a complimentary insurance cover that provides death or permanent disability benefit of up to Rs 10 lakh, subject to certain terms and conditions.
Factors Favoring Credit Card Cash Advances
As with all things, Credit cards cash advance (Cash Withdrawals) can also have some advantages.
Instant Money
In situations where you may not have the time to arrange funds, your credit card can be the quickest way to get money. You can walk up to any ATM and withdraw the amount you need.
Ease Of Use
A Credit Card cash advance can be availed at any time of your choosing. Furthermore, unlike all other loans, there’s no annoying paperwork. All you need to do is check the bank’s website to know how to use cash advance on your credit card to get an idea of the repayment terms, withdrawal limits.
Easy Access
You can use the credit card cash withdrawal facility at most leading banks. Some banks like the IDFC FIRST Bank also offer interest-free ATM cash withdrawals for up to 48 days on credit cards. This helps you save money while serving your financial needs.
Charges Applicable On A Credit Card Cash Advance
While it is understood that Credit Cards come with interest and fees, withdrawing cash on Credit Cards can prove to be a costly deal. Given below are charges which your bank may apply on the withdrawal.
Cash Advance Fee
This is the fee charged every time you withdraw cash using your Credit Card. Typically, it ranges from 2.5% to 3% of the transaction amount, subject to a minimum amount of Rs 250 to Rs 500 and is reflected in the billing statement.
Interest
Interest is charged on a monthly percentage rate, typically from 2.5% to 3.5% per month. Unlike regular transaction, for cash withdrawals, there’s no interest-free period; charges start accruing from the day of the transaction till it’s paid in full. IDFC FIRST Bank, is an exception to this rule, which doesn’t charge any interest up to 48 days and later on charges monthly interest as low as 0.75% to 3.5%.
Finance Charges
Regular Credit Card transactions attract finance charges and so do cash withdrawals. The charge is levied from the date of the transaction up until the repayment has been done.
ATM Fee
As a Credit Card user, you are allowed up to 5 free ATM transactions per month, depending on the location. Beyond this limit, you are charged what’s known as an ATM maintenance or interchange fee. Until recently, the fee was Rs 15 per cash withdrawal. However, starting 1st August, the RBI has revised it to Rs 17 per withdrawal. In case of non-cash transactions, the fee has been raised from Rs 5 to Rs 6. Both amounts are exclusive of taxes. The fee will be charged to your Credit Card and appear on your Credit Card statement.
Late Payment Fee
If you do not repay the full amount, late payment charges are levied on the outstanding balance and this could be anywhere from 15% to 30%.
Alternatives to Credit Card Cash Advance
As earlier stated, Credit Card Cash Advances are too costly an option. You can therefore consider other options with low Annual Percentage Rate (APR) of interest.
Salary Advance
You can ask your employer for an advance on your salary. If you have been working with the same company for some time, your employer may be willing to extend you an advance without hassle.
Gold Loan
You can consider gold loans from Nationalized banks as these are available at much lesser Annual Percentage Rate (APR) of interest. Moreover, you always have the option to prepay the loan and secure your assets back from the bank.
Personal Loan
Personal loans let you borrow funds for various needs at affordable interest rate options. The processing time is also less, allowing you to cater to emergencies as well as other requirements. Collateral Loan: In the case of a high amount, you can pledge a financial asset as security and opt for a collateral loan. Financial assets can include mutual funds, stocks, real estate, etc.
Loan on Credit Card
In addition to the fixed monthly credit limit, you can also take a loan on your credit card. This is sanctioned over your existing limit. The application and repayment procedure is similar to other loans, with varying interest rates depending on your card, loan amount, etc.
Recommended Approach When Opting For Credit Card Cash Advance
Almost all banks allow to opt for cash advances on credit cards, since the bank earn a high rate of interest on these withdrawals. You may consider following steps if you’re still inclined to go ahead with a cash advance against your Credit Card:
Evaluate Other Options
There are several options to borrow money from banks and you may evaluate each such option based on the rate of interest which is applied.
Chart A Repayment Plan
Planning and executing a systematic repayment is crucial, since Credit card cash advance attracts high rate of interest. Whether its based on future earnings, whether its a bonus in the pipeline, or profits from business, or an increment coming up in the recent future etc... should be populated on the drawing board to ensure the debt is repaid as soon as possible.
Read The Fine Print (Terms & Conditions)
Cash advances hold the possibility of quickly becoming too expensive to handle, with all the associated charges in tow. So it’s better to be familiar with what’s in store for you beforehand. Be aware of the charges levied by your bank and consider whether it is worth withdrawing cash using your Credit Card. You also need to find out how much extra outlay you have to shell out for the cash amount you intend to borrow.
Bottom Line
Credit card cash advances have some advantages, but they can be costly compared with other ways to borrow money. If you need funds but it's not a dire emergency, take some time to research your other options before committing to a credit card cash advance. And if you do end up withdrawing cash from your card, try to pay off the balance as quickly as possible to minimize the interest charges.
FAQs
When you withdraw cash from an ATM using your credit card, it is termed as credit card cash withdrawal or cash advance.
Cash limit or Cash Advance Limit is a part of your Credit Limit which is the amount you can withdraw at the maximum. The residual amount of Credit Limit can then be utilised for normal credit card transactions. Usually the cash limit is ~10% of your prescribed credit limit on your card. Check your Credit Card’s Welcome Kit or Monthly Statement to know the amount available for cash withdrawals. Alternatively, you can also check your credit card’s internet banking account.
You can withdraw cash using your Credit Card from a nearby ATM kiosk. The process is very much similar to withdrawing cash using your ATM/Debit card.
No, not all credit cards allow cash withdrawals. Credit card cash withdrawal is not a basic but an additional feature offered by various banks.
Generally, withdrawals are effective at any bank ATM regardless of the bank that issued the credit card. But, some banks occasionally charge a cash advance fee for external banks. At the same time, several banks limit such cash transactions by putting a cap on the maximum and minimum amounts of cash that can be withdrawn per day or per ATM transaction.
Generally, the Cash advance limit is a defined percentage of your Credit limit. In some cases, the your Credit Card Issuer may allow withdrawals above the cash limit, though the bank will simultaneously impose an over-limit fee apart from the customary finance charges.
Cash Advances or Cash withdrawal using your credit card will not directly influence your credit score, since these transactions are not separately reported to credit rating agencies. Though when you fail to pay back the whole outstanding due, that instance will then be reported in its entirety.
No. When the bank receives payment against available outstanding, the amount is adjusted in sequential order starting with the minimum amount due, applicable taxes, EMIs on loans, interest charges, balance transfer outstanding, and in the end, cash advances. Thus, the payment towards cash advance will be accepted once all other dues are cleared.
While it is okay to withdraw cash using a credit card, it is advised not to do so as it involves multiple additional charges, which makes such transactions quite expensive.
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