Why Withdrawing Cash Using a Credit Card Is Not a Good Idea!
Your credit card may be loaded with free insurance, benefits of reward points, bonus points, discount on purchases and cash back offers. Apart from all these convenient features, it might seem the right thing to withdraw cash from ATMs in an emergency.
When you run out all options to get money. But the next time when you withdraw cash using your credit card, you must think twice before doing the transaction, it could cost you dearly!
Read on to know more about the charges that come with using a credit card for cash withdrawal.
Transaction Fee and Interest Charges
A Costly Alternative
Unlike debit cards, withdrawing cash using a credit card is not free even for a single transaction. You must pay transaction charges on cash withdrawal using your credit card which is generally up to INR 300 or 3 percent of the cash withdrawn and whichever is higher taken as the fee. When you withdraw a huge amount, you might end up losing a hefty sum as the transaction fee.
However, it does not stop with that.
When you make a purchase using your credit card, it offers a grace period i.e. interest-free period, (the duration of which depends on the bank) after the monthly bill is generated. But this grace period is not applicable to cash withdrawal through ATMs either domestically or abroad. Interest is calculated for the amount from the first day of withdrawal.
For example, when you withdraw INR 5000 using your debit card, there is no fee levied provided if you have not crossed the transaction limit. But when you withdraw INR 5000 using your credit card, you will have to pay a transaction fee (250) and additionally interest of up to2.90%=130 from the day of withdrawing. Hence for a transaction of 5000, you will pay about INR 380 more. Added to this you have an upper limit on how much you can withdraw.
These reasons make it a no-brainer to not consider a credit card as an instrument to withdraw cash from ATMs, but recent data from the Reserve Bank of India shows that the number of people who have withdrawn using a credit card, and we feel this is the time to inform everyone on the other options available when faced in such a dire situation.
How Can You Avoid Using Credit Card for Cash Withdrawal?
According to the RBI report, the cash withdrawal using credit cards has increased in the recent years. Though it may benefit the lenders, it becomes a costly affair for the consumers. You can switch to other alternatives through which you can prevent yourself from withdrawing using your credit card.
Here are 3 easy alternatives
Alternative 1: The Personal Loan
For huge amount, a personal loan could be a viable option as the interest rate is comparatively better. With the EMIs and moderate interest rate, it won’t be the burden while repaying, unlike credit card cash withdrawal.
Alternative 2: E-Wallet
With the booming of digitalisation, e-wallets have become a popular phenomenon for any bigger purchases. Instead of paying through cash, you can either use your credit card or fund your e-wallets to pay for the goods.
Alternative 3: Debit Card
Always keep your debit card loaded with considerable cash to meet any urgent requirements and avoid using your credit card.
In times of utmost emergency, you might have to use your credit card for cash. Withdrawing a small amount may not turn out to be expensive but a huge amount is certainly not recommended. Try our recommended alternatives instead.