Using your credit card to make an instant cash withdrawal is known as a credit card cash advance. Cash advances are available through online banking, bank branches, and ATMs.
There is a cap on the amount you can withdraw as a cash advance, and banks will list it on your credit card statement. Usually, this sum is equal to your credit limit or a lesser amount.
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Just like with a debit card cash withdrawal, an ATM cash advance can be made in a similar way.
When requesting a cash advance at a bank branch, you will need to present your credit card to the teller, who will then, subject to your cash advance limit, give you the requested amount of money.
Fees for Cash Advances
Cash advances, as previously mentioned, are credit card transactions that incur fees. A cash advance has interest attached, just like any other credit purchase. If you charge purchases on your credit card, interest will only be applied to the amount owed if it is not paid in full by the deadline. Nevertheless, the cash advance will start to accrue interest the day it is made, unlike other credit purchases.
There is an additional upfront fee for cash advances, and this will show up on your credit card statement. Bank to bank fees vary, but generally speaking, the minimum is 2.5% of the amount being withdrawn.
This fee is in addition to the interest you normally pay on your credit card, so if you already have an unpaid balance on your card, you may end up paying a large amount.
Because banks consider cash advances to be high risk, they come with a higher interest rate. Consumers who use cash advances run the risk of not being able to pay back the money that was lent to them; in such case, the bank will have to write off the amount. Banks are unable to recoup the money they loan you for a cash advance, unlike credit card transactions. This makes them riskier than loans because cash advances don’t require collateral, which the bank can seize if the borrower doesn’t repay the money.
Things to Keep in Mind About Cash Advances
Although taking out a cash advance might not be the best course of action financially, if it’s your only option, consider the following before doing so:
Payment allocation: If you’ve made a cash advance and you’re only paying the minimum amount due on your credit card for that billing cycle, the payment will be applied to your outstanding balance rather than your cash advance. This is a result of banks’ decision to pay off balances by default that have a lower interest rate. This transaction would be much larger because your cash advance has a higher interest rate from the moment it is made. Should this balance be carried over to your subsequent billing cycle, you will be required to pay an extremely high interest rate. It is advisable to pay both the cash advance amount and your minimum balance in order to prevent such a scenario.
Examine the fine print: Regarding cash advances and the interest that applies to them, each bank has its own terms and conditions. In certain instances, the conditions also vary for various credit card kinds. You should always review the terms and conditions for your particular credit card on the bank’s website or in the materials that were sent with it to prevent being charged extra.
Pay back cash advances right away because interest starts to accrue on the day the advance is made. Put differently, when it comes to cash advances, there isn’t a grace period or interest-free period. If you have no other credit card transactions, you might want to think about paying off the cash advance as soon as possible to avoid incurring a large interest charge on this transaction.
Credit card purchases you should steer clear of: Although most people consider a cash advance to be a withdrawal from your credit limit, banks classify other charges made to your credit card as cash advances and charge exorbitant interest rates for them. To avoid paying a higher interest rate, do not purchase these with your credit card:
Travelers’ checks.
foreign money.
lottery tickets and gambling.
obtaining a cash advance from an ATM overseas.
No purchase protection: For purchases made with a credit card, several banks provide a maximum of six months of purchase protection. This benefit does not, however, apply to purchases made using cash advances.
Because of the costs and dangers involved, cash advances should be avoided. If, on the other hand, you’ve run out of options, remember the advice above and make an effort to limit cash advances so that your credit line remains intact.
FAQs Regarding Advances on Credit
When I use my credit card to make a cash withdrawal, should I be charged extra?
Yes, there is a fee associated with using your credit card to withdraw cash.
When I use my credit card to withdraw cash, does the bank need to approve it?
No, you are not required to obtain bank approval in order to use your credit card to make cash withdrawals.
When must I pay back the cash I took out on my credit card?
When you pay your credit card bill, the amount you took out with your card will need to be reimbursed. The money does not need to be paid back in cash. The amount can be paid with a demand draft, UPI, etc.
Where can I find the total amount of money I took out with my credit card?
Your credit card statement will include the transaction for the cash withdrawal made using your credit card as well as the associated charges.