Credit cards are a convenient financial tool, offering benefits like discounts, reward points, and flexible payments. However, using a credit card to withdraw cash comes with significant costs. Before opting for a cash withdrawal, it’s important to understand the associated charges and potential impact on your credit score.
High Charges on Credit Card Cash Withdrawals
While credit cards offer numerous benefits, they also come with multiple fees. Cash withdrawals using a credit card are particularly expensive, with charges typically ranging from 2.5 to 3 percent of the transaction amount. Unlike regular credit card purchases, cash withdrawals do not come with an interest-free period. Interest starts accruing from the date of withdrawal until the full repayment is made.
Impact on Credit Score
Frequent cash withdrawals using a credit card can negatively impact your credit score. While a one-time withdrawal may not have a direct effect, repeated transactions and delays in repayment can lower your score over time. This can make it harder to secure loans or credit approvals in the future.
ATM Transaction Fees
Credit card users are typically allowed up to five free ATM transactions per month, depending on the location. After that, banks may charge ATM maintenance or interchange fees, excluding taxes. These fees can add up quickly if you rely on cash withdrawals frequently.
Late Payment Penalties
If you fail to pay the full amount due on your credit card, a late payment fee is applied. This fee can range from 15 to 30 percent of the outstanding balance. Missing payments also negatively affects your credit score, making it crucial to clear dues on time.
Cash Withdrawal Limit
Most banks impose a limit on how much cash can be withdrawn using a credit card. Typically, this is around 40 percent of your total credit limit. Exceeding this limit or withdrawing frequently can lead to additional financial strain due to high interest rates.
Reward Points and Benefits
Credit cards offer reward points for transactions like dining, travel, and shopping. These points can be redeemed for gift vouchers, cashback, or air miles. However, cash withdrawals usually do not earn any rewards, reducing the overall value of using a credit card.
Key Takeaways
- Cash withdrawals from credit cards attract high charges and immediate interest.
- Excessive withdrawals can negatively impact your credit score.
- ATM fees and late payment penalties add to the cost.
- The withdrawal limit is typically capped at 40 percent of the credit limit.
- Unlike purchases, cash withdrawals do not earn reward points.
Using a credit card for cash withdrawals should be a last resort. It is advisable to explore other options, such as personal loans or overdraft facilities, before withdrawing cash on a credit card to avoid high fees and financial strain.