Things to Know About Credit Card Cash Advance

by Mohammad AbdurKhan Financial Blogger

A credit card is one of the most used financial tool nowadays. Whether it’s retail purchases, bill payments, or flight bookings, a credit card is quite beneficial in various ways. But the one thing your credit card is not best suited for is cash withdrawal. Let’s find out why.

What Makes A Credit Card Not Suitable for Cash Advance

Most credit cards allow you to withdraw a portion of your approved credit limit in the form of cash, but it is not advisable to use your credit card for instant cash. Here’s why:

Cash Advance Fee: When you use your credit card to withdraw cash, you are charged various fees. Cash advance fee is the major fee. This fee is charged based on the amount of funds withdrawn. Most banks charge you up to 5% of the total amount withdrawn for every cash advance transaction made on your card.
ATM Fee: When you use your card at an ATM to withdraw cash, you are also charged by the bank of that particular ATM in the form of ATM fee.
Higher Rate of Interest: Interest rates for cash withdrawal are generally higher when compared to the interest rates for retail purchases made on the card. Most banks charge an interest of 18% p.a. on cash advances. Whereas, the interest rate for retail purchases made on a credit card would lie mostly in the range of 15% p.a. to 18% p.a.
No Grace Period: You don’t get a grace period for the cash advances made on your credit card. Most banks charge the interest for a cash advance from the date of cash withdrawal. This would make it difficult for you to minimise your expenses.
Overseas Transaction Fee: If you use your credit card for cash withdrawal overseas, it just attracts more charges such as the overseas transaction fee. Such charges add on to the usual charges such as cash advance fee and ATM fee. It is best for you to not use your card to withdraw cash overseas.

Keep in mind

Use your credit card to withdraw cash only in emergency situations where you require instant cash.
Look out for other alternatives before you opt for a credit card cash withdrawal.
Know the maximum limit of funds you can withdraw using your credit card. Most cards have a limit for cash advances.
Once you withdraw cash using your credit card, make sure to repay the amount quickly in order to avoid paying high interest and to minimise your debt.
Make sure that you actually require cash before opting for cash advance.
Do not make this a habit or use this facility whenever you need instant cash.
Never ignore the terms and conditions associated with your card’s cash withdrawal facility.

Remember that cash advances on your credit card can affect your finances due to the extra charges. It is recommended that you avoid cash withdrawals on your card as far as possible. Consider it only as the last resort for emergency cash.