Is it safe to use your credit card for cash withdrawals? Find out | Mint

Credit cards are flexible financial instruments that facilitate all types of online purchases and offline purchases. It is theoretically possible, but a “cash advance” is not always a simple or economical option. Let us review the mechanics of advances from financial institutions, their costs, potential risks, and their benefits.

Credit card

A credit card is a metal or plastic card issued by a financial institution that enables you to borrow funds for purchases. Using a credit card, basically, involves borrowing money from the issuer which you would pay back often with an addition of interest. When applied sensibly, credit cards have some benefits that can include cash back and points.

What is credit card cash withdrawal?

With a credit card cash withdrawal, also known as a cash advance, you can use your credit card to withdraw cash from an ATM without further documentation or prior authorisation. Although this seems convenient, it has drawbacks:

• Withdrawal limits: The withdrawal limit varies with the type of credit card you have, depending on the bank.
• Availability: The facility of cash withdrawal is not available on all credit cards.

Fees for cash withdrawals from credit cards

Every cash advance is associated with some cost, mostly in the form of 2.5 to 3 % of the advance taken, along with a minimum charge of ₹250 to ₹500. These add up pretty fast and are not a type of interest. To avoid surprise, it’s always advised to read the terms and conditions sent by your bank.

Interest rates on cash withdrawals

Unlike other credit card transactions, cash advances do not have an interest-free grace period and attract interest immediately. Interest rates vary from bank to bank, but they tend to be on the higher side. Interest begins to accrue from the date of withdrawal until the full amount is repaid.

Advantages and disadvantages of credit card cash withdrawals

Advantages

1. Emergency cash availability: Cash advances are available instantly for emergency cash without the long time-consuming approval procedures and paperwork.
2. No savings are required: There is no need to have savings in your checking account to obtain cash.

Disadvantages

1. Costly fees: Cash advances are very costly because of fees on transactions
2. Interest begins accumulating immediately: There is no grace period for interest accumulation on cash withdrawals as is the case with other transactions. Interest begins accumulating immediately.

How to withdraw cash using a credit card?

At an ATM, using a credit card to withdraw cash is just like using a debit card:

In conclusion, using a credit card for cash to withdraw emergency funds seems quite practical, but one has to do that with caution. The benefits of this are expensive options because of high fees, speedy interest charges, and no reward points. If possible at all, consider another course of action to avoid this such as using your money for critical bills or borrowing from a friend or family member.

(Note: Using a credit card carries its own set of risks.)