Rewards points, cash back, and no fuel surcharges are some of the most advertised credit card benefits. However, another feature that they offer, which is not as well known, is the cash advance. When you withdraw money with your credit card, it’s called a cash advance. This facility can come in handy when you need emergency funds. But that comes at a price and is often difficult.
Let’s understand the different aspects of withdrawing cash with a credit card.
How much can you withdraw?
The cash withdrawal limit of a credit card varies depending on the creditworthiness profile of the cardholder, 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 of your credit card is Rs 5 lakh, you can withdraw between Rs 1 lakh and Rs 2 lakh in cash or 20% to 40% of your allocated credit limit. The remaining credit limit can only be used for card transactions.
Cash withdrawal fees
Banks charge transaction fees for credit card cash withdrawals. These fees typically range from 2.5% to 3% of cash withdrawn but can vary by card and issuing bank. So if you withdraw Rs 1 lakh in cash using your credit card, you will be charged a transaction fee of between Rs 2,000 and Rs 3,000. But that is not all.
Cash withdrawals by credit card also earn interest of up to 3.5% per month. However, there is no interest-free payment term for cash withdrawals, that is, interest begins on the day the cash withdrawal is made.
Adhil Shetty, CEO of BankBazaar.com says: “Before withdrawing money with your credit card, you should consider these two important factors. First, cash withdrawals earn interest from the day of withdrawal. Second, cash withdrawals count as used credit and increase your credit utilization ratio. This also lowers your available credit limit.
Should I withdraw money with my credit card?
Withdrawing money from your credit card can be a costly affair and should only be done when there is no other option. However, the cash advance feature can be very helpful if used responsibly in an emergency. If you have availed yourself of this, make sure you pay your bill on time and if you can afford it, try to pay the bill before the due date.