Why Credit Card Cash Withdrawal is a Risky Move?

Credit Card Cash Withdrawal

Credit Card Cash Withdrawal

Financial emergency can strike at any point in life and when such a situation arises, we often look at either our savings or apply for quick financial solutions like loans, which can be used to fulfill the immediate financial needs. But when you are short on time to apply for loan, credit card cash withdrawals may come in handy to make you financial ends meet.

Credit card cash withdrawal, also known as cash advance, works in a similar manner as any other ATM or debit card cash withdrawal. Every credit card has a certain cash withdrawal limit which is a percentage of the total credit limit available on that card. If you have a sufficient cash limit available on your credit card, you can easily withdraw cash from an ATM.

However, despite being a convenient and quick process, credit card cash withdrawal comes with considerable charges and risks too. In some cases, this may also have negative impact on your credit score, especially when you are unable to make the payment on time.

Given below are some of the factors that you must keep in mind before using your credit card for any cash advances:

Cash Withdrawal Fee:

Most credit cards charge you with a one-time cash advance fee every time you withdraw cash using them. This fee varies from card to card or depending on the card provider and may be equal to a set percentage of the amount withdrawn or, in some cases, a fixed amount. For instance, it can range between 2% and 3% of the cash amount or from Rs. 200 to Rs. 500.

High Interest Charges:

In most cases, credit card cash withdrawals are not eligible for the 20-50 days interest-free period, which is given on other credit card transactions. So, the finance charges are applicable on cash advances from the day of withdrawal. Some card issuers may charge a higher rate for cash advances, ranging from 2% to 3.9% per month, as. Moreover, when you withdraw cash from your credit card, new transactions also become ineligible for the interest-free period. Since this interest is compounded daily and until you pay back the withdrawn amount in full, new transactions will also attract interest, charges can quickly add up and create a debt spiral.

Potential Debt Trap:

The interest charges and cash advance fee charged on withdrawals sometimes go unnoticed by the cardholders and pile up until the full amount is paid back. This due amount, including the withdrawn amount, high interest charges and taxes, may be difficult to pay back. Due to this, if you decide to only pay the minimum amount due, interest charges can accumulate further, thus trapping you into debt. This, in turn, will also have a negative impact on your credit score.

No Rewards Earning:

Unlike other transactions and spends madevia credit cards, no rewards and other similar benefits are offered on the cash withdrawal amount. So, despite affecting your credit limit and credit utilisation ratio, the cash advance feature does not help you earn any reward points, discount offers or cashback in return.

As seen from the points above, credit card cash withdrawal is considered to be quite a costly affair due to the high additional charges associated with it. Though easy, quick and globally available on most credit cards, cash withdrawal can incur high costs, which can be difficult to repay and end up as a financial burden if not dealt with quickly.

Hence, you should always avoid withdrawing cash from your credit card and use it only as the last resort. To cover an emergency, you should consider taking a loan on credit card or a personal loan, as both of these options would be comparatively cheaper and will have lower chances of creating a debt spiral.

About Sashi 562 Articles
Sashi Singh is content contributor and editor at IP. She has an amazing experience in content marketing from last many years. Read her contribution and leave comment.

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