Credit Cards: Helpful but Risky
Credit cards are incredibly useful tools, offering a grace period to repay your balance without any interest. Many of them come with amazing offers and discounts, making them a go-to for daily purchases. However, there’s one feature you should always be cautious of: cash advances. This could cost you BIG if you’re not careful!
What Are Cash Advances?
Most credit cards allow you to withdraw cash, but be careful! The amount you can withdraw is typically 20-40% of your credit limit. For example, if you have a ₹5 lakh credit limit, you might be able to withdraw between ₹1 lakh and ₹2 lakh in cash. Sounds convenient, right? But there’s a catch.
The Hidden Costs of Cash Withdrawals
Here’s why cash advances can cost you a fortune:
1. High Charges
Withdrawing cash using a credit card incurs a fee of 2.5% to 3%. So, if you withdraw ₹1 lakh, you’ll end up paying between ₹2,500 and ₹3,000 in fees. Imagine the frustration!
2. No Interest-Free Period
Unlike regular purchases, there’s no interest-free period for cash advances. Interest starts accumulating immediately, and the rates are usually higher than for purchases.
3. Impact on Your Credit Score
Frequent cash withdrawals can have a negative impact on your CIBIL score. Use this option only in emergencies, when there are no other alternatives.
Avoid cash advances unless it’s an emergency. The costs and risks are just too high. Stay smart with your credit card!