Credit cards can be an extremely convenient way to manage one’s finances, but at the same time, they can be very expensive and risky. For instance, even though getting cash is easy and convenient through credit cards, it can be very expensive for you. Additional interest, along with other charges like processing fee, finance charges, cash advance fees, etc. doesn’t make this a preferable option for people.
Credit cards are known to be an emergency line of credit and can be a financial safety net to cover an unexpected cost that arises during a cash crunch. However, this comes at a cost.
Here are the charges that credit cards attract while withdrawing cash;
- Interest is charged at a certain percent monthly decided by the bank at the time of buying the card. The interest will be levied from the date of the transaction until the borrower makes the repayment in full. Usually, an interest rate of 2.5 per cent to 3.5 per cent per month is charged by banks on all cash advances, which is around 30-42 per cent per annum. However, this rate varies from bank to bank and from one card to another.
- Every time a cardholder uses their credit card to withdraw cash there is a cash advance fee that is charged. This also typically ranges from 2.5 to 3 per cent of the withdrawn amount, or a minimum amount of Rs 300 – 500. Note that these charges also vary from one bank to another.
- Finance charges are levied on the borrower from the date of cash withdrawal until the amount is paid back in full. Keep in mind that credit card holders are also needed to pay a finance charge on cash advance fee at a rate similar to that charged on the withdrawn amount.
- Reward points that are promised with the use of credit cards are not offered during cash transactions. Hence, irrespective of the transaction amount, you will not be entitled to any reward points for credit card cash withdrawals.
- Credit cards are known for their interest-free period, however, with cash withdrawal using a credit card, the interest-free period of the usual 45 days is not valid. Hence, with cash advances, the interest piles up till it is repaid completely.