Credit cards are often promoted for their benefits such as reward points, cashback, and waivers on fuel surcharges. However, a lesser-known feature they provide is the cash advance option. This allows cardholders to withdraw cash using their credit card, which can be particularly useful in emergency situations when immediate funds are required. It is important to note, however, that this service typically incurs significant fees.

Therefore, it is essential to examine the different facets of cash withdrawals from credit cards.

How much can you withdraw?

The cash withdrawal limit associated with a credit card is determined by the cardholder’s credit profile, the issuing financial institution, and the specific card type. Typically, banks permit a cash withdrawal limit ranging from 20% to 40% of the overall credit limit.

For instance, if your credit card has a total credit limit of Rs 3 lakh, you may be eligible to withdraw between Rs 60,000 and Rs 1.2 lakh in cash, representing 20% to 40% of your designated credit limit. The balance of the credit limit is restricted to transactions made using the card.

Also Read: Income Tax Refund: How to check your ITR Refund status and what to do if refund is delayed?

Cash withdrawal charges

Financial institutions impose a transaction fee for cash withdrawals made using credit cards. This fee generally falls within the range of 2.5% to 3% of the total cash withdrawn with a minimum charge of Rs 250 to Rs 500, although it may differ based on the specific card and the bank that issued it. For instance, if one were to withdraw Rs 1 lakh in cash using a credit card, the transaction fee would amount to between Rs 2,000 and Rs 3,000. Additionally, it is important to note that cash withdrawals from credit cards incur significant interest charges, which can reach up to 3.5% per month. Furthermore, these cash withdrawal transactions do not benefit from an interest-free credit period, meaning that interest starts accruing immediately from the date of the withdrawal.

Therefore, prior to withdrawing cash with your credit card, it is essential to take into account two significant considerations. Firstly, interest on cash withdrawals starts to accrue immediately upon the withdrawal date. Secondly, such withdrawals are considered as credit utilized, which will increase your credit utilization ratio. Consequently, this will lead to a decrease in your available credit limit.

Should you withdraw cash with your credit card?

You need to remember that cash advances on credit cards incur interest charges from the date of the transaction until the full payment is made, making them costly. Also, unlike regular card transactions, cash advances do not earn any reward points. Additionally, there is no interest-free period for cash advances, meaning that interest will accumulate until the outstanding balance is fully repaid.

Thus, while the cash advance option can be extremely beneficial in times of emergency if utilized prudently, make sure to settle your bill promptly if you have utilized this service, or if possible, clear the bill before the deadline.