Cash Withdrawal from a Credit Card
In India, credit cards have transformed the way individuals think about getting loans and other forms of credit. A credit card has numerous functions, one of which is the cash advance feature, which offers cardholders with instant liquid cash.
Unlike other loans, the credit card cash advance option does not necessitate any additional bank permissions or documentation.
What is a Cash Withdrawal from a Credit Card?
The technical term for a credit card cash withdrawal option is a credit card cash advance. It allows credit cardholders to withdraw cash from the bank's ATM using their credit cards. Because credit cards are commonly used for card transactions, the ability to withdraw cash is a bonus feature provided by the banks. Cardholders who use the service can withdraw cash up to a certain limit and must refund it together with interest and other fees.
The feature may not be accessible on all credit cards, and the cash withdrawal limitations and finance charges may differ from one card to the next. As a result, all credit card users must be informed of the terms and conditions that apply to their card.
What is the difference between a credit limit and a cash advance limit on a credit card?
While a credit card's credit limit is the maximum amount that can be spent on it, a credit card's cash limit is the maximum amount of money that can be withdrawn with it. A credit card's cash limit is usually included in the credit limit allowed. Most banks provide a cash limit of 20% to 40% of the total credit limit. For example, if a card's entire credit limit is Rs. 1 lakh, you can withdraw up to Rs. 20,000 to Rs. 40,000 in cash. The remaining funds should only be used for card transactions.
The monetary limit on a credit card is usually announced to the cardholder when the card is issued by the bank.
The cash limit may not be the same for all of the bank's credit card types, therefore it differs from card to card and from customer to customer. The cash limit on a particular card is not set in stone and can be changed at any time at the bank's discretion.
Banks may adjust the limitations on a regular basis or based on a variety of factors such as card usage trends, cardholder repayment behaviour, default payments, and other credit information obtained from credit bureaus. Customers will be notified of any such adjustments by messages or e-mails.
What is a Cash Advance Fee on a Credit Card?
A credit card cash advance fee is applied to each cash withdrawal transaction conducted using a credit card. A cash advance fee, which is often a percentage of the withdrawn amount, is levied every time a credit card is used to withdraw cash.
Typically, banks impose a credit card cash advance fee of 2.5 percent to 3% of the withdrawn amount, with a minimum of Rs.300 to Rs.500. The charge will appear on your next billing statement. A financing charge equal to the rate paid on the withdrawn amount is added to the cash advance fee. It will be charged from the date of withdrawal until the entire amount is repaid.
Even if you make many cash advance transactions in a single day, you will be charged for each one based on the amount you withdraw.
Charges for Using a Credit Card to Make a Cash Withdrawal
Credit card cash advances are also subject to financing charges. The interest is calculated at a monthly percentage rate and will be charged from the date of transaction until the loan is fully repaid. All cash advances are normally charged a monthly interest rate of 2.5 percent to 3.5 percent by banks.
The rate changes from one bank to the next and from one card variation to the next, and the cardholder will be informed of the rate when the card is issued. Furthermore, the rates are dynamic and may alter at the bank's discretion. Aside from the external factors that influence the overall interest rate on cash advances, such as card usage, frequency of purchases, repayment behaviour, and so on, there are also card-specific elements that influence the interest rates charged on a certain credit card.
How to Make a Cash Withdrawal with a Credit Card
Withdrawing cash from an ATM using a credit card is as simple as withdrawing cash with a debit card. To get the money, simply stroll into any of your local ATM kiosks with your credit card and follow the cash withdrawal instructions. Cash withdrawals with a credit card can be made at any bank's ATM, regardless of the credit card's originating bank. A few banks, however, may charge a separate cash advance fee if you take money from another bank's ATM. A few banks may additionally impose a limit on the amount of money that can be withdrawn per ATM transaction or per day.
As a result, before using the cash advance feature, you should familiarise yourself with the terms and restrictions that apply to your card, as well as the fees and charges that come with it. It's also vital to know the card's available cash limit before withdrawing money to avoid going over the limit. The bank will levy an overlimit fee in addition to the finance charges if the overlimit transaction is executed.
Impact of a Cash Advance on a Credit Card on a Credit Score
Credit card cash advances will not be reported to the credit bureaus separately. The total amount owed and the failure to pay it will be reported as a whole. As a result, taking a cash advance on your credit card could not have a negative influence on your credit score. However, you may find it difficult to keep up with monthly payments due to the high interest rates (accrued daily) and additional penalties and levies applied on credit card cash withdrawals.
Failure to pay even the minimum amount due has a negative impact on your credit score and will appear on your credit record. Cash advances will have no affect on your credit score as long as you make timely payments.
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