A credit card allows you to borrow money to buy things. However, there is a cost involved in borrowing that money—credit cards and personal loans attract some of the highest interest rates in India, but there can also be a benefit to using credit cards. You earn rewards and build your credit if you follow healthy credit practices.
A credit card also allows you to withdraw cash from an ATM. When you use your credit card to withdraw cash, it is also called a cash advance or a short-term loan. You can get a cash advance at most ATMs, or at a financial institution. However, there are a few things you need to know before you withdraw cash against a credit card.
Most card issuers charge a steep fee and APR for cash advances. APR stands for annual percentage rate. This is the rate your lender applies to calculate interest charges if you carry a balance on your account. As you may know, credit cards are notorious for putting people into steep debt. You pay and pay, month after month, but are forever caught in a financial rut. The reason is often rooted in high credit card APR that’s applied to your balances.
When you withdraw money against your credit card, you are charged a high interest rate. These high interest rates eat away at every payment you make, preventing you from reaching zero efficiently. If you can't quickly pay off what you borrow, you could easily fall into a debt cycle.
How is a cash advance different from a credit card transaction?
Cash advances are treated differently than your typical credit card transactions. For starters, you are charged an up-front fee that is a percentage of the total cash requested, with a minimum fee if your withdrawal is small. Cash advances also tend to have much higher interest rates than normal purchases, and they don’t usually come with grace periods, so you start to accruing interest charges right away.
There’s also a limit to how much money you can withdraw with a cash advance.
Here’s why cash advances are a bad idea:
High transaction fees on the cash advance: You are usually charged a fee upfront based on the amount of the cash you borrow. These charges are covered in the terms and conditions part of your credit card agreement. Different lenders charge different fees—it is best to contact the customer care of your lender in order to know the up-to-date charges
No grace period: When you make a purchase with your credit card, your lender won’t start charging interest right away. There is usually a grace period of at least 25 – 30 days. A credit card cash advance is different. When you borrow cash from your credit card issuer, they start charging you interest immediately, so the interest charges add up swiftly.
High interest rates: Credit card advances are notorious for their steep APR rates. Depending on your lender, it could be as high as 25% and even more. Banks typically charge a rate of interest of 2.5% to 3.5% per month. Also remember, there’s no grace period. So you’ll start getting charged interest at this high rate right off the bat.
Bad sign for lenders: Taking a cash advance is a bad idea, as it indicates to your lender that you are a risky borrower. If your lender sees you’re using cash advances, you might get flagged by their risk models. If they see you as risky, you might not be able to get credit when you may need it in the future. You may find it difficult to open a new line of credit or be charged a high interest rate. Your lender may even apply a higher interest rate to your balance going forward.
Negatively impacts credit score: Your cash advance balance adds to your credit card debt. This debt shows up on your credit reports. The higher your credit utilization ratio and the higher your credit card debt is compared to your total available credit, the lower your credit scores will be. If you already have high balances on your credit cards compared to your credit limits, then cash advances can make your credit score go for a spin.
Do you really need a cash advance?
If you’re getting a cash advance for just for the sake of convenience, be sure you’ve exhausted all your options before taking a cash advance. If you are in immediate need of cash, look at other options like a gold loan, personal loan and other types of loans.
If you do borrow from your credit card, make sure you’re able to pay off what you borrow—immediately.
Additional Reading: Why Withdrawing Cash Using a Credit Card Is Not a Good Idea
How do I get money from an ATM with a credit card?
Nearly every credit card allows you to get cash advances, however ill-advised. Following are the steps if you’re still thinking of taking out a cash advance.
Think about other options: As mentioned earlier, cash advances aren’t a great idea. Other options include gold loans, personal loans or credit cards with 0% APR or low APR.
Check to make sure your credit card allows cash advances: Contact your lender’s customer care to see if your card is eligible for cash advances at the ATM. Alternatively, you can check your credit card’s terms, check your online dashboard or credit card statement for your cash advance limit.
Check your cash advance limit: Credit card cash advances have a limit. Again, check with your creditor or check your statement to know how much your cash advance limit is. There may also be a daily cash advance limit.
Set your PIN: You usually receive your PIN with your card. If not, you will have to request it from your credit card issuer by logging in to your net banking account online or calling the phone number on the back of your card.
Take time to understand the terms and fees for cash advances: Cash advances can quickly become expensive, with its associated fees and interest charges. It's best to know what’s in store for you well in advance.
Think about your repayment plan: Have a repayment plan in place. Figure out how and when you’ll pay back the cash advance. While you’re at it, sit down and do the math to figure out how much extra money you’ll be paying for the cash you’re borrowing.
Get the cash advance: Find an ATM, insert your card, and enter your PIN when prompted. Follow the instructions on the ATM. Remember, you might get charged a fee for using the ATM—in addition to the balance transfer fee—if the transaction is done on an ATM other than your financial institution.
Pay back the cash advance as soon as you can: Remember, your cash advance will start attracting interest charges right away. Pay back the cash advance as soon as you can. If you don’t, it is a good recipe to get into depth.
- Can I get a cash advance on my credit card?
If you are faced with an unexpected expense, a cash advance from your credit card can be helpful when no other option is available. Many credit cards allow users to make a cash advance against their available credit limit. This can be taken through an ATM and also through a bank withdrawal.
- How can I get cash from my credit card in India?
Credit card cash withdrawals can be made at ATMs of any bank. However, a few banks may charge a cash advance fee for withdrawing cash through another bank’s ATMs.
- What happens if you withdraw cash from a credit card?
Cash withdrawal from a credit card can result in high transaction fees as well as interest charges. This can also indicate desperation for finances and lenders consider it as a negative sign that can affect your credit score.
- Can I withdraw excess cash from my credit card?
Credit card companies generally do not allow cash withdrawal from credit card beyond the available credit limit. However, in case of excess withdrawal, it could mean a reduction in the available credit limit and high-interest fees to be paid on the withdrawn amount.
- What are the charges for cash withdrawal from a credit card?
When a credit card is used to withdraw cash, a cash advance fee is charged. Typically, banks may charge 2.5% to 3% of the withdrawn amount provided the minimum amount withdrawn is Rs. 300 to Rs. 500.