Reward points, cashback, and fuel surcharge waivers are some of the most advertised perks of credit cards. However, another feature they offer — that is not as well known — is cash advance. When you withdraw money using your credit card, it is known as a cash advance. This facility can come in handy if you need funds during an emergency. But, it comes at a cost, and usually a hefty one.
Let’s understand the various aspects of credit card cash withdrawal.
How much can you withdraw?
The cash withdrawal limit of a credit card will vary based on the cardholder’s credit profile, the issuing bank and the card. Most banks allow 20%-40% of the total credit limit as the cash limit.
For example, if the total credit limit on your credit card is Rs 5 lakh, you may be allowed to withdraw between Rs 1 lakh and Rs 2 lakh as cash, which is 20% to 40% of your assigned credit limit. The remaining credit limit can only be used for card-based transactions.
Charges on cash withdrawal
Banks levy a transaction fee on credit card cash withdrawals. This fee typically ranges between 2.5% and 3% of the withdrawn cash amount but may vary depending on the card and the issuing bank. So, if you use your credit card to withdraw Rs 1 lakh in cash, you will be charged a transaction fee ranging between Rs 2,000 and Rs 3,000. But that is not all.
Credit card cash withdrawals also attract hefty interest of up to 3.5% per month. However, cash withdrawal transactions do not come with an interest-free credit period, which means the interest begins accumulating from the day of the cash withdrawal.
Adhil Shetty, CEO, BankBazaar.com, says, “Before you withdraw cash using your credit card, consider these two important factors. First, interest on cash withdrawals begins accumulating from the very day of the withdrawal. Second, cash withdrawals count as credit used and will raise your credit utilisation ratio. As a result, your available credit limit will also reduce.”
Should you withdraw cash with your credit card?
Withdrawing cash from your credit card can be a costly affair and you should opt for it only when there is no other option. However, the cash advance feature can greatly help during an emergency when used responsibly. If you have availed it, ensure you pay your bill on time, and if you have the means, try to repay the bill before the due date.