Credit Card Cash Withdrawal: Everything you need to know

Credit cards have become one of the most widely used methods of payment. They are not just easy to use but also come with exciting rewards with every swipe. But did you know that you can also get cash from credit cards? Let us see how that works.

What is credit card cash withdrawal?

Credit card cash withdrawal, technically known as credit card advance, is a feature that allows you to withdraw cash from an ATM using your credit card. Traditionally, you might have thought that credit cards are typically used for transactions made via swiping the card at a PoS machine or entering your card credentials on a payment page when shopping online. As an added advantage of credit cards, you may also choose to withdraw money using these cards. However, not every financial firm extends this service, and for those that do, the terms may vary based on the card you own.

In general, for the cards that come with this additional feature, there is a withdrawal limit. The withdrawal limit is a percentage of the total credit limit of your credit card, generally ranging between 20% and 40%. For instance, if your credit limit is set at Rs. 1 lakh, and your bank offers you a cash withdrawal limit of 35%, you can withdraw up to Rs. 35,000 in cash from credit cards. You are free to use the remaining amount of the limit for online and offline card transactions.

Your credit limit is adjusted by the bank at any time based on your repayment history, creditworthiness, and frequency of use of the card. Consequently, the credit card cash withdrawal limit extended to you is also affected.

Now that you understand what credit card cash withdrawal is, let us see how you can do it practically.

How to withdraw cash using a credit card?

Withdrawing cash from credit card is the same as that done by using a debit card. Here is how you can do it in 3 steps:

1. Grab your card and get to your nearest ATM.

2. Insert the card into the slot in the machine.

3. Enter the amount and your ATM PIN. The machine will disburse the cash to you in a matter of minutes.

However, there are a few things you need to keep in mind when withdrawing cash from an ATM machine. While getting cash from credit cards seems like a great deal (and it can be, especially in case of emergencies), it comes with some charges that you must be aware of. Let us see what they are.

What are the charges on credit card cash withdrawal?

Credit card cash withdrawal comes with a set of financial charges. After all, it is not like withdrawing money from your savings account. You are, in a way, taking a loan from the financial institution that has extended the credit card facility to you. Since the credit extended to you attracts charges, it would be best to familiarise yourself with these before deciding to withdraw cash from credit cards. Let us see the different additional amounts levied on you:

1. Transaction fee

Any time you withdraw cash using your credit card, a fee is charged on the transaction. The credit card cash withdrawal fee is usually between 2.5% and 3% per month of the amount withdrawn. Moreover, there may be a minimum amount of such fee charged on every transaction that varies between Rs. 250 and Rs. 500, based on the rules of your credit card company. It is essential to understand that this fee is charged on every transaction. If you withdraw money more than once on the same day, there will be a separate charge for each withdrawal.

2. Interest

In addition to a transaction fee, a certain amount of interest is charged on the cash withdrawn, starting from the day of the withdrawal till the day the amount is paid in full. The rate of interest is approximately the same as the rate charged as the transaction fee, which is 2.5%- 3% per month. From an annual perspective, it can go up to around 40% per annum. This can put a massive burden on your pocket, making this source of cash withdrawal a not-so-attractive option.

3. ATM charges

You are not charged any fee on up to 5 ATM transactions in a month. However, after 5 transactions in a month, you may have to pay ATM charges, also known as interchange fees. At present, ATM charges are about Rs. 17 (plus GST) for every cash withdrawal. Moreover, your bank may charge a fee if you withdraw money from another bank’s ATM. However, this is not true for every bank, and in most cases, using a different bank’s card at an ATM does not attract an additional fee.

4. Late payment fee

If for any reason, you do not pay your credit card bill on time, a late payment fee is levied on the outstanding amount. This usually ranges from 15% to 30% of the amount due, putting an additional burden on your pocket. Not being able to pay your credit card dues on time can push you into a debt trap, which is why it is advised to be cautious while making transactions. As long as you spend within your limit and are on time with the repayment, credit cards are a great financial tool for you.

To understand when it is beneficial to get cash from credit card, let us see the pros and cons of doing so.

Advantages of credit card cash withdrawal

Credit card cash withdrawal comes with the following advantages:

1. Access to money at any time

You can make a credit card cash withdrawal at your convenience from any of your closest ATMs. Since ATMs are always open, you get 24x7 quick access to cash. This is especially helpful in case of an emergency when seeking credit from other sources can prove time-consuming and non-reliable.

2. No requirement for documentation

The one thing that is troublesome with applying for personal loans is the paperwork that comes along with it. The documentation process can be cumbersome and can take very long. On the flip side, cash from credit cards is the quickest source of credit. You are free from the hassle of arranging and submitting documents.

3. Flexibility in withdrawal limit

As mentioned before, the withdrawal limit is set by your credit card company. It is a percentage of your overall credit limit, which the institution can adjust at any time. This is based on your repayment pattern and credit card usage history. If you are prompt with paying your credit card bills and exhibit a healthy credit pattern (which involves staying within your credit limit), your credit card company will extend the limit on the cash you can withdraw using your credit card.

Apart from this, it is also important to look at the flip side. Let us explore the cons of cash from credit cards.

Disadvantages of credit card cash withdrawal

Credit card cash withdrawal has the following disadvantages:

1. High-interest charges

Interest rates on cash from credit cards are the biggest reason why people refrain from using this source of instant cash. Interest is charged from the day of the withdrawal until the amount is paid back in full. The rate of interest is generally high, which increases your financial burden.

2. No reward points

One of the most lucrative features of credit cards is the reward points that you get on every swipe. After accumulating these points, you can use them to get vouchers, gift cards, and other discounts. However, cash withdrawal transactions do not fetch you the reward points that you would otherwise get on credit card transactions.

3. Other financial fees

As mentioned above, credit card cash withdrawal comes with many charges. These are known as credit card cash advance fees, making this form of credit very costly. Thus, it is advised one uses this source to withdraw cash only in case of dire need or emergency.

Since your credit card usage history is looked into while determining your credit score, the question of how a cash withdrawal affects your score comes up. Let us see its consequences.

Does credit card cash withdrawal affect your credit score?

In short, no. Cash withdrawal does not affect your credit score. It is reflected as any other transaction on your card and has no effect on your creditworthiness.

the withdrawal comes with high-interest charges that may be hard to keep up with. The amount due is reflected in your credit card bill at the end of the billing cycle, and late or non-repayment shall adversely affect your credit score.

Moreover, the payment of your credit card bills is first adjusted towards the minimum amount that is due, followed by loan and EMI payments, taxes, and other charges. Then the amount is adjusted against the cash withdrawal. Thus, to make the repayment of cash, you will have to repay all the other outstanding dues first. Therefore it becomes very important for you to ensure that repayment is in full and on time.

The takeaway

Credit card cash withdrawal is a valuable facility that banks extend. It gives you quick and convenient access to cash, which proves helpful in case of emergencies. However, the financial charges and burden of interest that come along make this a less sought-after source of money. You must always exercise caution and read all related terms and conditions while obtaining cash from credit cards.