Should you use your credit card to withdraw cash?

A cash advance is when you withdraw money using your credit card. This service might be useful if you need money in an emergency. But it comes at a price.

Some of the most touted credit card benefits include reward points, cashback, and fuel fee exemptions. However, a lesser-known benefit that they provide is cash advance. A cash advance is when you withdraw money using your credit card. This service might be useful if you need money in an emergency. But it comes at a price, and it’s generally a high one.

Let’s look at the many components of credit card cash withdrawal.

A credit card’s cash withdrawal limit varies depending on the cardholder’s credit profile, the issuing bank, and the card. Most banks give a cash limit of 20%-40% of the overall credit limit.

For example, if your credit card has a total credit limit of Rs 5 lakh, you may be able to withdraw between Rs 1 lakh and Rs 2 lakh in cash, which is 20% to 40% of your given credit limit. Only card-based transactions are permitted with the remaining credit limit.

Credit card cash withdrawals are subject to a transaction charge levied by banks. This cost is normally between 2.5% and 3% of the withdrawn cash amount, however it might vary based on the card and issuing bank. So, if you withdraw Rs 1 lakh in cash using your credit card, you would be charged a transaction fee ranging between Rs 2,000 and Rs 3,000. But wait, there’s more.

Credit card cash withdrawals also incur high interest rates of up to 3.5% per month. However, cash withdrawal transactions do not have an interest-free credit period, thus interest begins to accrue on the day of the cash withdrawal.

“Before you withdraw cash using your credit card, consider these two important factors,” advises Adhil Shetty, CEO of BankBazaar.com. First, interest on cash withdrawals begins accumulating from the very day of the withdrawal. Second, cash withdrawals count as credit used and will raise your credit utilisation ratio. As a result, your available credit limit will also reduce.”

Withdrawing cash from your credit card may be expensive, and you should only do it if you have no other options. However, when utilised carefully, the cash advance tool may be quite beneficial in an emergency. If you have used it, make sure you pay your bill on time, and if possible, attempt to reimburse it before the due date.