What is a credit card?
A credit card is a financial instrument that allows users to access funds instantly. The cardholders can make transactions online or in stores using a credit card. Without any deductions from their cash deposits in their savings accounts, they can make payments and earn rewards on their purchases. The best credit cards are issued with a pre-set credit limit based on an individual’s eligibility, like age, income, credit history, transaction patterns, etc. The user can pay the bill and applicable interest on or before the credit card bill date.
What is Credit Card Cash Advance?
A credit card cash advance is a facility that allows cash withdrawal from your credit card account. In other words, you are getting cash as borrowed money against your credit card. Cash advances can be a useful source of financing to face an emergency. It is considered a short-term instant loan that banks offer to credit cardholders. There is usually a limit on the cash advance the credit card holder can get on a card. Like any financing option, it also comes with a cost.
How does a Cash Advance Facility Work?
Taking out money from a credit card seems similar to getting money using a debit card. But it is a cash advance on your credit card wherein you access funds from the credit card company. The card issuer provides you with funds and charges your account against a fee. It is a transaction fee and an annual percentage rate (APR).
One should use the cash advance facility on credit cards if they are short on funds. Cash advances should not be used regularly because of a fee charge.
Ways to withdraw money using a credit card
Credit cardholders can withdraw money through cash advance in the following ways:
- In-person: Cardholders can simply visit their bank’s nearest branch to request the credit card cash withdrawal under the cash advance facility on a credit card.
- At an ATM: The cardholder can go to an ATM to withdraw money using your ATM PIN. If the user doesn’t have a PIN, they can generate it in the ATM. There can be a set limit on the withdrawal amount in an ATM.
- Cheque: Banks also allow a withdrawal facility through cheques. The credit cardholder can write a cheque and deposit it to the bank to cash it against the credit card account.
Let us take a microscopic look at the costs a credit card user should know on this facility.
Understand Cash Advance Fee on Credit Cards
Undoubtedly, credit cash advances are a very helpful and quick way to access funds in an emergency. Sometimes its costs can outweigh the benefits of cash advances if the bank charges a high fee. Look at these important aspects regarding credit card cash advances:
- Transaction fee: The credit card users need to pay a fee to use the card cash advance facility. The card issuer may charge a fee between 3% and 5% of each requested cash advance.
- Cash advance APR: Generally, most credit cards carry a higher interest rate for cash advances as compared to purchases on it. The card issuers may offer a credit card without any interest rate on a cash advance facility for a stipulated period, say the first six months from issuing the card. Later, the card issuer will charge the APR as per regular interest rates applicable to the facility.
- ATM or bank fee: When users request a cash advance at an ATM or the card issuer’s branch, they need to pay a fee.
Important Aspects to Consider
- No grace period: Cash advances start accruing interest immediately at the time of the withdrawal. Credit card users are not offered the benefit of a grace period to repay the cash advance amount. It is necessary to pay the interest from day one when you withdraw money using the cash advance facility. Like credit card purchases, you are not provided a grace period of 21 days. It means you should pay the cash advance in the timely manner necessary to avoid excess interest payments.
- Set credit limit: The card users should know that banks allow withdrawal of a fixed limit on cash advances. It is a part of your overall credit limit on the card. Let’s say the credit card limit is Rs.80,000 per month. The bank may allow you to withdraw up to Rs.20,000 for the cash advance facility.
Thus, cash advances on the best credit cards are small instant loans to cover the emergency expenses for you and your family. Pay your medical bills or use them as per your other financial requirements. Credit card cash advances are part of your credit history. Remember to make timely payments to avoid unnecessary huge interest charges and maintain your good credit record.
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