Fees and Limits: Factors to Know About Cash Withdrawal on Credit Cards

Credit cards have increasingly become an indispensable tool for managing financial emergencies. One of the often-overlooked advantages of owning a credit card is the ability to make cash withdrawals.

However, it’s a feature that can come at a hefty cost – the credit card cash withdrawal charges. This post aims to uncover the complexities of withdrawing cash using a credit card, and the associated fees and limits. 

Understanding Credit Card Cash Withdrawals

Credit card issuers often offer cash withdrawals, allowing cardholders to access cash, much like a debit card, from an ATM. However, this convenience has a price, in the form of cash withdrawal charges. 

Here’s what you need to know before withdrawing cash with your credit card:

● Immediate Interest Accrual: Interest on cash withdrawals begins to accrue from the day of the withdrawal, which contrasts with the grace period usually granted on regular credit card transactions.

● Transaction Fee: A fee of 2.5% to 3% of the cash withdrawal is applied as a transaction fee.

The Expense of Cash Withdrawals on Credit Cards

Cash withdrawal charges on credit cards come with certain fees.  Here are the primary charges to keep in mind:

●  Cash Advance Fee: This fee, generally 2.5% to 3% of the cash withdrawn, is applied each time cash is withdrawn with a credit card. For instance, if A withdraws Rs 10,000, he could incur a cash advance fee of Rs 250 to Rs 300.

●  ATM Fee: If you’re using an ATM not owned by your card issuer, the ATM owner might charge an additional fee.

●  Foreign Transaction Fee: Withdrawing cash from an international ATM often incurs an additional fee, generally a percentage of the withdrawn amount.

Limits on Cash Withdrawal Charges on Credit Cards

It’s important to remember that the ability to withdraw cash using your credit card isn’t unlimited.

Credit card issuers impose limits on the amount of cash that can be withdrawn:

● Cash Advance Limit: This limit is often a percentage of your total credit limit, usually around 20% to 40%. For example, if A has a credit limit of Rs 1,00,000, his cash advance limit could range from Rs 20,000 to Rs 40,000.

● Daily and Monthly Limits: Credit card issuers often set daily, weekly, or monthly limits on cash withdrawals to protect the cardholder and the lender from fraud or excessive debt.

Effect on Your Credit Score

While cash withdrawal with credit cards can be an immediate financial solution, it’s essential to consider their potential impact on your credit score. High credit card utilisation, including cash withdrawals, can negatively affect your credit score.

Let’s delve into this a bit more:

● Increased Utilisation Ratio: If you frequently withdraw cash using your credit card, you might increase your credit utilisation ratio, which is a significant factor in determining your CIBIL score. A higher ratio can indicate financial instability, thus affecting your score negatively.

● Accumulating Interest Charges: With credit card interest charges applying from the day of the cash withdrawal, you might struggle to pay off your balance in full each month. It could lead to late payment charges, further harming your credit score.

Also Read: How to Avoid Credit Card Late Payment Charges?

Cash Withdrawal Policies: A Comparison Across Different Credit Cards

It’s important to note that not all credit cards have identical cash withdrawal policies. Comparing and understanding these policies can help make an informed decision: 

● Differences in Cash Advance Fees: Some credit cards may have lower cash advance fees than others, which can be advantageous, primarily if you frequently rely on cash withdrawals.

● Cash Advance Limits: Cash advance limits can vary across credit cards. A sound understanding of these limits can help manage your withdrawals effectively, avoiding unexpected financial shortfalls.

Ways to Minimise Costs and Manage Cash Withdrawals

A careful approach to credit card cash withdrawals can help save on unnecessary fees and maintain good credit health:

● Organise your withdrawals: Withdraw larger amounts less frequently to avoid accumulating transaction fees. However, ensure you don’t exceed your cash advance limit.

● Quick repayments: Aim to repay the withdrawn amount as soon as possible to prevent accumulating interest charges.

● Use sparingly: Treat credit card cash withdrawals as a last resort, not a regular financial strategy.

Conclusion

While cash withdrawal charges on credit cards can offer instant cash in emergencies, understanding the costs involved is recommended. You can make sound financial decisions by being aware of the credit card cash withdrawal charges and their potential impact on your credit score.