Wondering if you can use your credit card to withdraw cash? This is quite a common query among new credit card users. While most people generally think that credit cards are for purchases only and not for withdrawing cash, the reality is different.
There is nothing wrong to withdraw cash from a credit card. Everyone can easily use a credit card to withdraw cash either from an ATM or the bank. A credit cardholder needs to consider some factors and think wisely before doing so. Because otherwise, it can be detrimental.
Here, I would enlighten you with all the necessary information that you need to learn before withdrawing money using a credit card:
How To Withdraw Cash From A Credit Card?
Withdrawing cash from a credit card is similar to withdrawing cash from a debit card or an ATM card. But there are some extra steps that you need to follow before going for a cash advance.
The steps are given below:
- Go through the latest bank statement and check the cash advance limit. The cash advance limit is decided by the company and thus you must know it first.
- Learn about the fees you would need to pay to take a cash advance. The interest rate, one-time withdrawal fee, and other fees would vary from company to company. Know about the fees by reading the terms and conditions.
- Now withdraw cash from an ATM that accepts your credit card. You would need your PIN for this procedure. The system is the same as withdrawing money with an ATM or debit card.
- You can withdraw cash directly from the bank. Also, learn about the offers your bank gives for a cash advance.
Pros And Cons Of Withdrawing Cash From A Credit Card:
Below I’ve listed the major pros and cons of withdrawing cash from a credit card:
|Pros Of A Credit Card||Cons Of A Credit Card|
|You can withdraw cash using a credit card at any time, 24×7||Until you pay back the amount, interest would be levied from the day of withdrawal|
|Once permitted by the issuer, you don’t require any other approval to withdraw cash with a credit card||You need to pay a fee every time you withdraw cash using a credit card|
|The cash advance limit is flexible and can be increased if required||If you use your credit card for cash advances, you can’t use it for credit reward points|
Is It Good or Bad To Withdraw Money From A Credit Card?
It is never suggested taking a cash advance. Withdrawing money from a credit card is an expensive procedure that comes along with some adverse consequences.
Firstly, the one-time fee of a cash advance is high. Plus, you need to pay an ATM fee. And the worst part is the high interest charged from the day you withdraw money from a credit card till the day you pay back the money. So, the more time you take to repay, the more interest you pay.
All these phenomena ultimately affect your credit score and credit report. If you can’t pay back quickly, your credit utilization rate would go up and your credit score would deteriorate.
In all aspects, it is not a good idea to take a cash advance. However, if it is an emergency and you need to withdraw money from your credit card, repay the amount as fast as you can to minimize damages.
3 Factors To Consider Before Withdrawing Cash From A Credit Card:
It is evident that withdrawing money with a credit card has both merits and demerits. So, if you need to withdraw money with a credit card, you have to take care of some factors. Otherwise, you would be in trouble.
Let me outline 3 important factors to consider before withdrawing money from a credit card:
1. Impact On Credit Score:
The credit score is a crucial part of your financial record. A good credit score not only improves your credit report and history but also encourages lenders to give you loans of heavy amounts.
If you take a cash advance and don’t pay it back quickly, the interest rate and credit utilization rate would drastically go up. As a result, your credit score would go down.
Therefore, if you are considering cash withdrawal from a credit card, think of when you would be able to repay. If it takes a long, your overall credit record would be harmed.
2. Cash Advance Fees:
While cash withdrawal with other cards doesn’t require extra fees, cash advance fees are added when you take out cash from an ATM using a credit card.
The one-time cash advance fee is around 3%-5% of the cash advance amount. Besides, an ATM fee is added. It means you need to pay a lot more than you actually withdraw.
Read the terms and conditions of the card to learn how much fee is charged in what circumstances. Decide wisely as it can be an expensive procedure.
3. High Interest Rate:
Credit card transactions always come with interest. But when you withdraw cash from a credit card, the interest rate is higher compared to the interest rate for purchasing.
Interest would be charged from the day you take a cash advance with your credit card. There is no grace period in this case. So, the more time you take to repay, the more interest you pay.
How Much Money Can You Withdraw From A Credit Card?
There is always a limit for a cash advance. As a cash advance should be taken only in emergencies, companies set a limit so that you don’t get to withdraw as much as you want using a credit card.
Though the credit limit for a cash advance varies from company to company, commonly, the limit is set between $300- $500. This is an amount that you are likely to pay back easily within a month or so. This the interest you pay would be low and your credit score would not be harmed.
Considering all these aspects, the limit is usually kept low to make users withdraw the cash only when necessary.
You have learned about various aspects regarding cash withdrawal from a credit card. Though it is allowed to take a cash advance, you should save it for emergencies to avoid losses.
So, are you going to withdraw cash from a credit card or not?