Credit Card Cash Withdrawal

Credit cards have been an integral part of the credit facilities and have changed the perspective with which people looked at loans. When it comes to credit card cash withdrawal, there are many facets that the users need to know more about. One of these, for example, is the cash advance feature. This assists in the provision of liquid cash to the card holders with ease. The credit card cash withdrawal is different from acquiring finance through loans in that these do not need approval from the banks or any sort of documentation every time a customer wants to exercise this option.

 The credit card cash withdrawal by the card holders can be done within a standard limit along with the assurance that the repayment will be done along with the interest applicable on the amount withdrawn. However, the above feature is not available on all the credit cards and the permitted limit varies from one card to the other along with the interest charges.

What exactly is Credit Card Cash Withdrawal?

Credit Card Cash Withdrawal

When talking about credit card cash withdrawal, the most commonly used technical term is ‘credit card cash advance’. The credit card cash withdrawal facility allows its credit card holders to withdraw cash by making use of the bank’s credit card at the bank ATM. Credit cards are mostly limited to card payments for purchases only. Therefore, the credit card cash withdrawal is an added feature of the card that the bank may decide to provide to the customers. The credit card cash withdrawal by the card holders can be done within a standard limit along with the assurance that the repayment will be done along with the interest applicable on the amount withdrawn. 

However, the above feature is not available on all the credit cards and the permitted limit varies from one card to the other along with the interest charges. 

Credit Card Cash Withdrawal from a Credit Card

The credit card holders are often tempted to withdraw cash from the ATM using their credit card, especially during times of financial crisis. However, this might be a risk which could turn into a hazard in the future due to the financial burden it puts on the card holder. To comprehend this better, compare this to the regular card payments made using the credit card. When the card owner purchases something and pays for it through the credit card, the total due is billed when the next card statement is generated. 

Also, the banks also provide an interest free credit period for the same on the basis of the date of purchase and the outstanding balance of the card. But this is not the case for credit card cash withdrawal. When the owner of the credit card withdraws cash from the ATM, the billing cycle that begins is different from the one that is ongoing for card payments. 

 Although this does mean that however risky it might be, some banks do provide this option and the people carrying the credit cards from these banks can withdraw cash upto a permissible limit using their card. However, the banks charge these customers for credit card cash withdrawal. Even so, these charges might be lesser when the customers use the ATM of the very same bank whose card they carry. However, these charges might go higher when the ATMs of other banks are used for credit card cash withdrawal.

Interest Free Period for Credit Card Cash Withdrawal

As mentioned above, credit card cash withdrawal does not provide any interest free credit period to the customer. Therefore, the calculation of the interest starts as soon as the card holder swipes the card to withdraw cash. Apart from this, credit card cash withdrawal also imposes a finance charge and a transaction fee on the card holder who withdraws the cash. The rates for these may vary depending on the bank issuing the credit card but these can go up to 2.5% – 3%  of the amount withdrawn in the form of cash. However, it might be a minimum amount that has been set by the bank itself. Whichever of the two is higher, the customer pays to the bank. In comparison to card payments, the interest or finance charge on credit card cash withdrawal proves to be higher.

Interest Charged on Credit Card Cash Withdrawal

When credit card payments are made, there is usually an interest free credit period of around 20 to 50 days. However, credit card cash withdrawal charges interest from the very first day of the withdrawal itself. The credit cash advance generally charges interest at the rate of 2.5-3% on a monthly basis, although these may vary from bank to bank. In addition to this, there is also a transaction fee on the withdrawal which usually goes at 2 – 3% of the transaction amount. Not only this, but there are also taxes charged on interest, thus proving that credit card cash withdrawals can turn out to be very costly, literally and otherwise. 

Provided below is a comprehensive list of the charges levied on credit card cash withdrawal:

Interest – Due to no interest free period, the withdrawn amount is subjected to interest of about 2.5% to 3.5%  of the transaction amount.

Cash Advance Fee – For each time that a card holder withdraws cash using a credit card, this cash advance fee is charged. This too is about 2.5% to 3% of the transaction amount.

Finance Charges – These are accrued to any form of credit card transactions from the first day of purchase till the repayment has been done in total.

Late Payment Fee – If the card holder fails to pay the transaction amount of the credit card cash withdrawal along with the charges, the late payment fee is applied on the outstanding balance ranging from 15-30 %.

Credit Card Cash Advance Limit for Cash Withdrawal

Cash advance limit or cash limit is different from the credit limit in that the latter is the maximum amount that can be used for transactions using a credit card. But the cash limit is the maximum cash that can be withdrawn by a card holder using a particular credit card. This cash limit for credit card cash withdrawal is usually incorporated in the credit limit itself. It is a certain percentage of the credit limit provided by the bank for a credit card. For example, most banks set the cash limit at about 20% to 40% of the credit limit as a whole. Therefore, if a bank has set the credit limit at Rs. 2 lakh, the cash limit i.e. the maximum cash that can be withdrawn using the credit card would be Rs. 40,000 to Rs. 80,000. The remaining amount can be spent through card payments only.

Cash Withdrawal from Credit Card

The cash limit for a particular credit card is usually informed to the card holder when the bank is issuing the card to them. It is important to note that the same bank may decide upon different cash limits on different variants of their credit cards for credit card cash withdrawal. This may also vary from customer to customer. The cash limit of the credit card is subject to change at the discretion of the bank at any point of time. This is usually done after regular periods of time depending on factors like the spending pattern of the credit card, if the card holder is repaying the total amount, default payment and the credit history of the customer obtained from the credit bureaus. These revisory steps are communicated to the card holders by contacting them through mail or messaging.

Impact of Credit Card Cash Withdrawal on Credit Score

The withdrawal or credit cash advance from the credit cards will not be reported to the credit bureaus separately. This is because the banks report the total outstanding balance and the non payment in its entirety. Therefore, credit card cash withdrawal cannot affect your credit score in any manner. However, the main concern is the additional charges and fees accrued to the credit card cash withdrawal and the high interest rates applied from day one. These make repayments for the card holders quite difficult. This means that failure in paying even the minimum amount due will eventually lead to an adverse effect on the credit score of the customer, thus bringing about a bad credit report too. 

Advantages of Credit Card Cash Withdrawal

  • The primary aim of the credit card cash withdrawal is providing the customers with instant cash in liquid form. This is so because the card holders can access the cash through any of the bank’s ATMs which are open 24×7. These ATMs are available in every city all over the country, therefore letting the card holder withdraw cash anywhere at any time as per their need.
  • To avail the other credit facilities like loans from the banks, there is a requirement for the bank’s approval and the person’s documentation to be submitted. However, these are not required for credit card cash withdrawal. There is no need to get the withdrawal approved or submit documents for the same. The credit card needs to be used at preferably the bank’s ATM and the cash withdrawal is done.
  • The credit limit on the credit cards are also flexible and can be increased for a customer. If the card holder spends on purchases in a consistent manner, does not have any late payments or defaults to their name etc, they would be eligible for an increase in their credit limit. The card holder will have to make a request for enhancement and once the bank approves it, their credit limit will be raised.

Disadvantages of Credit Card Cash Withdrawal

  • The first disadvantage is the additional fee and charges levied on the transaction amount. Each time the credit card cash withdrawal option is exercised by the credit card holder, a cash advance fee is added which further brings about finance charges which are applicable from the day of the transaction till the repayment is done in full.
  • Another drawback of using the credit card cash withdrawal feature is the interest charged. Although it is the same as charged for payments made through the credit card, the interest charged on cash advance is calculated from the day of the withdrawal and there is no interest free period as in card payments. Therefore, the total amount due becomes difficult to repay with the additional charges and extravagant interest.
  • Credit cards boost up the credit score for cardholders and help them earn reward points on their transactions. However, any transaction that involves credit card cash withdrawal is not eligible for earning any reward points. This remains fixed irrespective of the amount of the transaction and the purchase made from it.

Is Credit Card Cash Withdrawal Recommended?

The credit card cash withdrawal brings about with it a horde of concerns for the cardholder in terms of irrecuperable repayment and loss of some benefits that the credit card provides. The withdrawal of the cash comes with a fee charged on the transaction amount. The terms and conditions for these are highlighted in the credit card agreement while issuing the credit card. The loss of the interest free period along with the beginning of a different billing cycle poses a major problem in terms of repayment. The exorbitant interest leads to a higher outstanding balance over time. 

The cash advance withdrawn is added to the total credit card debt. Although it is not highlighted separately, the total debt shows up on the credit report. The utilization ratio and the debt being high, the credit scores automatically goes down. Therefore, though not direct, credit card cash withdrawal does have an adverse effect on the credit score. Therefore, keeping in mind these factors, SURE does not recommend credit card cash withdrawal and provides a cash limit of zero by default. The best alternative to cash withdrawal is to make use of digital payments and avoid the additional fees and charges along with the high interest.