Need to make a payment urgently in cash but do not have access to that much money around you? Using the credit card you have on hand in a situation like this could be the key to mitigating your frustration. However, is this really feasible? If it is feasible, is it a practical decision?
Credit Card Cash Withdrawal
Cash withdrawal using a credit card is termed as ‘cash advance’. Not every credit card permits an individual to avail cash advance and, therefore, looking up and understanding the terms and conditions that come with your credit card is imperative. Understanding what is a cash limit in a credit card is imperative as well.
This is because a cash advance is garnered based on your credit limit, beyond which you cannot avail any more cash. Certain credit cards provide their owners with separate credit limits for credit card usage and cash advance utilization. A Credit card cash withdrawal usually has a lower credit limit as compared to the credit limit kept specifically for other transactions.
Credit Card Cash Withdrawal Procedure
Procuring a cash advance is relatively simple. There are three ways for you to get this done. Firstly, visiting the closest automated teller machine (ATM) to you is the most common way of receiving a cash advance. Following the instructions on the ATM’s display is easy and convenient as well.
Secondly, you can dial your local credit grantor’s customer service line and request them to issue a cash advance in your name. This would require you to provide the bank with some of your credit card details. Finally, writing a convenience cheque under your name is the third way through which you can receive a cash advance.
A convenience cheque refers to a cheque issued by your credit issuer in your name to encourage spending, and help you make certain purchases. This cheque must be cashed in at your bank.
Downsides of Credit Card Cash Withdrawal
Difficulty in Repayment: Cash advances accrue interest almost immediately after withdrawal. Paying back the money you have borrowed with regards to this advance may be a lot more difficult for this reason. This is very different compared to the usual credit card-related transaction, where the interest only accrues after the grace period ends. These interest rates are also a lot higher as compared to standard credit card interest rate.
ATM Restrictions: To obtain a cash advance, both your credit issuer and your ATM operator may request you to make individual fee payments to both of them. These fee structures vary significantly based on your credit card issuer’s policies.
Credit Score Impact: If your pertinent credit bureau receives information about the increase in your credit usage or the augment in your overall credit dependence, this can adversely impact your credit score. This affects your credit utilisation ratio (the amount you owe divided by your credit limit amount) which can be difficult to recover from. It can also hurt your chances of easily getting more credit in the future, as lenders will also be notified of this augmented dependence on credit.
Special Circumstances
In specific scenarios, certain transactions are treated as cash advances despite not really being cash advance. Most consumers confuse transactions of this type with cash advances, so we have decided to clarify these differences. If you have applied for an overdraft protection service, you will notice that it is very similar to that of a cash advance facility. Overdraft protection refers to the bank paying a certain amount on behalf of you if you have insufficient funds in your account. These transactions come with their own individual interest rates and penalty fees, and have been established to prevent you from getting embarrassed if your issued cheque were to bounce. Your overdraft protection amount depends on your credit limit as well. Gravitating towards cash advance in situations of crises is quite normal. However, these entail certain repercussions that you need to bear in mind. While there can be instances when you have to depend on cash withdrawals using your credit card, avoiding such situations as much as possible is recommended.
