The issuer of credit cards facilitates cash withdrawals from ATMs and banks, giving customers quick access to money when they need it. However, in order to make an informed decision about whether to proceed with a cash withdrawal using a credit card, cardholders must take into account a number of important factors, including associated fees, interest rates, potential effects on credit score, credit limit, etc.
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Credit Card Cash Withdrawal: What Is It?
Taking out cash from an ATM with your credit card is known as a credit card cash withdrawal. When you think about it, most card transactions involve the use of credit cards. But cash withdrawal from credit cards is an extra feature that card issuers have added. Cardholders can use this feature to withdraw money up to the allowed limits, which differ depending on the bank. The full amount, plus interest and any other relevant fees, must be returned by the cardholder.
Credit Card Cash Limit vs Credit Limit: What’s the Difference?
There are two distinct limits on the credit card: the cash limit and the credit limit. Your credit card’s credit limit is its maximum amount. This includes a cash limit that lets the cardholder take out a maximum of 20 to 40% at ATMs; card transactions can use the remaining 60 to 80% of the credit limit.
For instance, the cash limit is 20 to 40%, or ₹20,000 to ₹40,000, if the total credit limit is ₹1,00,000. This implies that the cardholder can use the ATM to withdraw between ₹20,000 and ₹40,000, and then use card transactions to spend the remaining ₹60,000 to ₹80,000.
You will be informed of the cash advance limit when you receive your credit card, and it may differ between cards or between cardholders. This limit is not set in stone and is subject to adjustment at the bank’s discretion in light of your credit history, repayment history, and spending habits.
What does a credit card’s cash advance fee mean?
Every time you use your credit card to withdraw cash from an ATM, you will be assessed a cash advance fee. This fee typically has a minimum of ₹250 to ₹500 and varies from 2.5% to 3% of the amount withdrawn. The credit card billing statement you receive will show these charges.
For instance, you would be charged ₹300 as a fee if you withdrew ₹10,000 and the cash advance fee was 3% with a minimum of ₹300. The amount of this cash advance will show up on your subsequent monthly bill. You will be assessed different fees according to the amount of each withdrawal if you make several cash advance transactions in the same day.
Credit Card Fees for Cash Withdrawals
When using a credit card to make cash withdrawals, there are usually two main fees involved.
Cash Advance Fee: Your credit card issuer will charge you up front for a portion of the withdrawal amount, usually between 2% and 5%.
ATM Cash Withdrawal Fee: A set fee assessed by the ATM operator for each withdrawal; usually, it varies from ₹100 to ₹150.
These fees can mount up quickly, particularly if you take out large or frequent cash withdrawals. You must properly control these expenses by making cash withdrawals from credit cards only when required. Keep yourself updated about the related costs so that you can make wise choices.
Credit Card Cash Withdrawal Interest Rates
When compared to standard credit card transactions, interest rates on cash withdrawals from credit cards can be very high. From the transaction date until the full repayment is made, interest is assessed at a monthly percentage rate.
These interest rates can vary from one card variant to the next and even from bank to bank. They are flexible and open to modification at the bank’s option. Interest rates can be affected by a number of things, including how often you use your card, how much you spend, and how you repay debt.
For instance, when a customer uses a credit card to withdraw cash, a bank might charge a monthly interest rate of 3.5%, which adds up to an annual interest rate of 42%. You need to be aware of the interest rates because, should the outstanding balance not be paid off right away, these costs can mount up quickly.
Finance Fees for Cash Withdrawals from Credit Cards
Financing fees apply to credit card cash advances, also referred to as cash withdrawals. The interest rates that apply to typical credit card purchases are not the same as these credit card cash withdrawal fees. Finance charges, or interest assessed at a monthly percentage rate, are associated with cash advances. From the transaction date until the entire repayment is made, these fees are assessed.
Interest rates on cash advances typically range from 2.5% to 3.5% monthly. Interest rates are disclosed to you at the time of card issuance and can differ between banks and card variants. These are dynamic rates that could alter at any time at the bank’s discretion. Factors unique to your credit card, like how often you use it, how much you spend on it, and how you repay it, can have a big influence on the interest rates that apply to your particular credit card.
How Credit Card Cash Advances Affect Your Credit Rating
Your credit score is unaffected directly by making credit card withdrawals. Cash withdrawals made with a credit card are regarded as regular transactions and are not reported to the credit agencies separately.
You must, however, be aware of the financial consequences of cash advances. Usually, there is a high interest rate and fee associated with these transactions, which makes credit card debt management difficult.
Your credit score may suffer if you only pay the minimum amount required on your credit card bills or if you fail to make payments on time. Your credit score can be impacted by high outstanding balances, missed or late payments, and both.
Pay the minimum amount due on time each month to keep your credit score high. Ideally, you should pay off the entire amount owed to prevent interest from building up. Pay off all of your credit card debt, including any cash advance balances, on time to maintain a good credit score.