What is Credit Card Cash Withdrawal or Cash Advance ?[SR1]
Credit card cash withdrawal, is a provision that allows credit cardholders to withdraw cash at the ATMs (within India and abroad for some cards) using their credit cards.
Credit cardholders can withdraw cash up to a certain limit. Cash limit depends on the card and is set by the issuing bank. It is different from credit limit and is usually lower than the credit limit on the card. Cash advances must be repaid along with interest and other charges.
How do I know what is my Cash limit?
This limit is decided by the issuing banks and is based on various factors that include your annual income, your credit score and your card usage behavior. Usually your cash limit is specified in your credit card statement and also when the card is received for the first time. Cash limit is separate from credit limit. Credit limit implies how much one can spend on their card either online or in-store but cash limit specifies the maximum amount of cash one can withdraw at an ATM using the card. Generally cash limit is 20% to 40% of the credit limit associated with your card. So if your credit limit is 2 lakhs on a credit card the cash limit is likely to be between Rs.40,000 to 80,000.
What are the charges on Cash Withdrawal? One important thing to note is that while credit cards have an interest free period ranging from 15-45 days for your spends on credit cards, this is NOT applicable for credit card cash advances.
You start getting charged interest from the day you take the advance. In other words there is no credit period for cash advance and you are required to re-pay it before the next payment cycle. Typically, the rate of interest is around 2% to 4% "per month" which is around 24% to 42% "annually". This is in addition to the transaction fee which vary from 2% to 4% depending on the bank and card type in addition to finance charges. Importantly, if you do not repay on time[SR2] (next payment cycle of the credit card) you are charged with a penalty or late fee ranging from 10% to 30% of the outstanding balance in addition to the interest amount.
Should I use Credit Card Cash Advance ?
Cash Advances on credit cards gets you instant funds even if you lack that amount in your bank balance, without the hassle of submitting documentation and waiting for approval from the bank. But one must be very cautious to make use of this facility. It is meant for emergency purposes only and as explained earlier, it entails heavy costs and also will immediately impact your credit score in case of delays in repayment. Using this facility should be your last option in any situation. If you have an ATM card, use that to withdraw cash because it doesn’t attract any interest, though the difference is that the amount being withdrawn must be available in your bank account. If you are travelling abroad, its best to buy foreign currency or traveler’s cheques before leaving the country. Cash Advances on credit cards are surely not a substitute for personal loans or other type of loans and should be considered judiciously. If you use it ensure to pay off cash advances immediately.
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