Is It Safe to Swipe Your Credit Card and Get Money?

To obtain cash using credit card follow the steps mentioned below:

1. Swipe your credit card at any ATM of the respective bank.
2. Select ‘Cash Advance’ option
3. Enter the card PIN

You can also visit the bank branch and request a cash advance by providing the card and relevant identification documents. The cash advance will incur interest rate immediately unlike regular purchases and each day will be counted until repayment.

How Much Cash Can You Withdraw?

You cannot withdraw your entire credit limit in cash. The bank sets a specific "Cash Advance Limit" for your card.

1. This limit is typically a percentage of your total credit limit, usually ranging from 20% to 40%. For example, if your credit card has a total limit of ₹1 lakh, your cash withdrawal limit would likely be between ₹20,000 and ₹40,000.
2. Your specific cash advance limit can vary based on the type of card you have, your repayment history, and your credit score. Banks may adjust this limit over time.

The Fees and Interest Charges Explained

Withdrawing cash from your credit card involves two main costs: an immediate fee and a high ongoing interest rate.

1. The Cash Advance Fee: This is a one-time fee charged for each withdrawal you make. It is typically calculated as a percentage of the withdrawn amount, usually 2.5% to 3.0%, with a minimum flat fee. This minimum fee is often between ₹250 to ₹500, so even a small withdrawal can be costly.
2. The Finance Charge (Interest Rate): This is the most significant cost. Interest on cash withdrawals starts accumulating from the day of the transaction. There is no interest-free period.
   1. This interest rate is much higher than the rate for regular purchases. For example, a bank might charge a monthly interest rate of 3.40%, which translates to a very high 40.8% annually.
   2. The interest continues to build up every day until you have paid back the entire withdrawn amount in full.

Crucial Points to Remember

Before considering a cash advance, it is essential to be aware of the following:

1. Always check your bank's official website or your cardholder agreement for the exact fees and interest rates applicable to your specific credit card.
2. Interest begins immediately, making cash advances a very expensive form of debt.
3. The fees and interest rates are subject to change by the bank, so it's always good to verify the current charges.
4. Because of the high costs, using your credit card for a cash withdrawal should only be considered in a genuine emergency when no other options are available.

Points To Remember to Manage and Minimise the Cash Withdrawal Charges

Here are the important points that should be remembered to minimise the cash withdrawal charges:

1. To protect your financial health, use the facility of cash withdrawal using a credit card only during the time of emergency as it may be too expensive for regular use.
2. Know about the cash advance limit, which is less than credit limit, before swiping your card to avoid incontinences at ATMs.
3. To reduce the overall cash advance cost, set up automatic payment to ensure timely repayment.
4. Look for alternatives before opting for the facility of cash withdrawal using a credit card.
5. Know about fees and interest rates associated with the cash advance before opting for this facility.
6. Withdrawal of cash frequently impacts the credit utilisation ration thereby affecting your credit score and hence this facility should not be availed frequently.
7. Look for a balance transfer facility in case you are struggling to repay your cash advance amount.

Things to Be Aware of Before You Swipe Your Credit Card

Here are the vital points that you should be aware of before swiping your credit card:

Budget Planning

1. Credit cards offer interest-free credit for a short period, leading to unplanned spending.
2. Increases financial burden due to overspending without a repayment plan.
3. To avoid debt accumulation, you must budget your expenses accordingly.

Offers and Promotions

1. Credit card providers offer cashback, discounts, and reward points on various purchases.
2. These promotions may include discounts on dining, movies, or shopping.
3. Always review the terms and conditions carefully before availing the facility of cash withdrawal.

Cash Withdrawal Charges

1. Most credit cards allow cash withdrawals but come with hidden charges.
2. It is important to understand the associated fees before swiping the card to obtain cash.

Credit Card Bill Payment and Credit Score

1. A credit score reflects your debt management and repayment habits.
2. Missing credit card bill payments negatively impacts your CIBIL score.
3. Cash withdrawal also impacts the credit score.
4. A low credit score can lead to loan rejections or higher interest rates.
5. Maintaining a good credit score helps secure better loan terms in India.

Pros and Cons of Swiping Credit Card to Obtain Money

You can swipe your credit card to withdraw cash in case of emergency, but the facility has various pros and cons that are mentioned below:

Pros of Cash Withdrawal Using Credit Card:

1. Provides quick access to cash in time of emergencies.
2. No requirement for a balance in your Savings Account.
3. No need for bank approval or extensive documentation.
4. Cash withdrawal limit is based on your Credit limit, offering immediate access to funds.

Cons of Cash Withdrawal Using Credit Card:

1. Fees are charged for each cash withdrawal.
2. No interest-free period like regular credit card transactions.
3. Interest starts accruing immediately from the date of withdrawal.
4. Cash withdrawals do not earn reward points like regular credit card purchases.