Credit cards are popular for their benefits like reward points, cashback, and fuel surcharge waivers, but they also offer a lesser-known feature: cash advances. This option allows cardholders to withdraw cash using their credit cards, which can be helpful in emergencies. However, it’s crucial to consider a few important factors before using this service.
Cash Withdrawal Limits
The amount you can withdraw depends on your credit profile, the issuing bank, and the type of card. Typically, banks allow cash withdrawals between 20% to 40% of your total credit limit. For example, if your credit card limit is Rs 3 lakh, you might be able to withdraw between Rs 60,000 and Rs 1.2 lakh in cash.
Cash Withdrawal Charges
Banks charge a fee for cash withdrawals made using credit cards, usually ranging from 2.5% to 3% of the amount withdrawn, with a minimum fee of Rs 250 to Rs 500. For example, withdrawing Rs 1 lakh could cost between Rs 2,000 and Rs 3,000 in fees. Additionally, cash withdrawals incur significant interest charges, up to 3.5% per month, starting from the date of the withdrawal. There’s no interest-free period for these transactions, meaning interest accrues immediately.
Considerations Before Withdrawing Cash
- Immediate Interest Accrual: Interest starts accruing from the date of the withdrawal.
- Credit Utilization Ratio: Cash withdrawals count as credit used, increasing your credit utilization ratio and decreasing your available credit limit.
Should You Withdraw Cash with Your Credit Card?
Cash advances on credit cards incur interest from the date of the transaction until paid in full, making them expensive. They also do not earn reward points and lack an interest-free period.
While cash advances can be helpful in emergencies if used wisely, ensure you pay off the balance promptly. If possible, clear the bill before the due date to avoid high interest charges.