Precautions to Know before Using Your Credit Card for Cash Withdrawal

Updated on: 04 Jan 2024 // 4 min read // Credit Cards
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With the New Year 2020 already started, it is time to get your finances in shape. Even though the financial year has entered the last quarter, it is still not too late to undertake some planned financial measures to improve your financial health. One financial instrument that has the most profound impact on your financials is your Credit Card.

While using your Credit judiciously bestows upon you several benefits, any laxity in using Credit Cards can land you in a spot of bother. There are various aspects of your Credit Card usage, which you must pay attention to, one of the most important being cash withdrawal.

Credit Card Cash Withdrawal

Every Credit Card, including the Best Credit Cards in India, comes with a pre-specified cash withdrawal limit. It is a sub-limit of the total credit limit available against your Credit Card. Consequently, your cash withdrawal limit reduces anytime you make a cash withdrawal and is replenished every time you make a repayment.

Cash withdrawal is an additional facility offered against Credit Cards by the companies to help the customers access to cash during times of emergency.

The cash withdrawal limit varies according to the variant of the Credit Card you are using, as well as according to your individual profile and credit policy of the Credit Card issuing company. The Credit Card company can increase or decrease this limit periodically based on its internal policies. The available cash withdrawal limit against your Credit Card is mentioned in your Credit Card statement.

Why must you use cash withdrawal facility with caution?

While the intentions of the company when extending this facility are good, and you can withdraw cash from any ATM with your Credit Card, but the facility comes with hefty charges. This necessitates you to exercise caution while withdrawing cash against your Credit Card.

Some of the charges that your bank will levy against cash withdrawals from your Credit Card are:

  • Cash Advance Fee: This is the fee levied by the bank every time you withdraw cash using your Credit Card. The applicable charges start from 2.5% per transaction and can go up to 3.5% per transaction. These charges will be added to your Credit Card statement every month. For instance, if you withdraw cash using your American Express Credit Card,you will have to pay a cash advance fee of 3.5% or Rs. 250, whichever is higher.
  • Interest Charges: The bank will levy interest charges against the amount you have withdrawn. The interest will be calculated from the date of withdrawal as there is no interest-free period available against cash withdrawals. Depending on your bank, the interest charges can vary between 2.5% to 4% per month.
  • Late payment charges: If you do not repay the entire amount by the due date, your bank will levy late payment charges on the outstanding balance. These charges can vary between 15% to 30% p.a., depending on the type of Credit Card you are using.

Precautions to observe when opting for cash withdrawal against your Credit Card

To ensure that you maximize the benefits available with your Credit Card while withdrawing cash, you must observe the following precautions:

  • Do not perform multiple transactions: If you need to withdraw cash against your Credit Card, make sure you do that in a single go, i.e., complete one significant transaction instead of withdrawing money through multiple small transactions. This will not only impact your Credit Score but will also reflect poorly on your credit profile.
  • Use this option during emergencies: Keep the option to withdraw cash only when it is absolutely necessary. The charges and fees applicable against Credit Card cash withdrawal are substantial. So, you must keep this option only for times of emergency. Usually, what happens is that you withdraw cash with your Credit Card during times of crisis. Still, if the situation does not improve as you expect, your Credit Card charges will levy a heavy burden on your finances.
  • Get a suitable Credit Card: If you feel that you might require cash advances frequently, then you must opt for suitable Credit Cards. There are various Credit Card companies that offer instant cash loans to their customers, which must be repaid in EMIs and come at attractive interest rates. Opting for such a Credit Card can help you save a lot of money.
  • Repay the amount as soon as possible: This goes without saying that you must repay the cash advance as soon as possible. As the credit-issuing company does not offer any interest-free period against Credit Card cash withdrawals, you must repay the amount as soon as possible. Firstly the bank will adjust the payment towards outstanding Credit Card dues and only thereafter against the cash withdrawals. Any delay in payment will result in an increased financial burden.
  • Use your Credit Card for cashless transactions: If possible, use your Credit Card for performing cashless transactions. Most retail outlets, as well as online platforms, accept payment through Credit Cards. They also offer instant EMI facility to allow you the flexibility in making the repayments. So, instead of withdrawing cash to pay for a purchase, use your Credit Card for making the payment digitally. This will also help you earn additional reward points.
  • Low mark-up fees: If you frequently travel abroad and use your Credit Card for cash withdrawals, then you must avail of a Credit Card with low forex mark-up fees. By opting for such a Credit Card, you can reduce the expenses that you will have to otherwise incur on forex withdrawals. Though, if possible, use your Credit Card to make payments in forex instead of withdrawing cash to make payments.

By following these precautions, you can reduce the expenses to be incurred on account of Credit Card cash withdrawals and maximize the benefits on offer.

Also Read: 5 Ways Your Credit Card can Help You during Emergency

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