A credit card is a convenient and secure way to pay for goods and services without carrying cash. However, sometimes we may need some cash for emergencies or other purposes. In such cases, one may wonder if we can withdraw money from a credit card at an ATM and, if so, how to withdraw money from a credit card.
Today, we are here to talk about how to withdraw cash from a credit card using any credit card.
What is a cash advance?
Many credit card issuers, like Kotak 811 Dream Different Credit Card, allow you to withdraw cash from your card at an ATM. This is called a cash advance. The amount we can withdraw depends on the cash limit assigned by the card issuer, which is usually a percentage of the total credit limit.
If you want to know how to withdraw cash from a credit card, you need to have a PIN (Personal Identification Number) for your card. You can request a PIN from your card issuer online, by phone, or by mail.
Once you have a PIN, you can use any ATM that accepts your credit card network (such as Visa, Mastercard, or American Express) and follow the instructions on the screen to complete the transaction.
Charges for a cash advance
When asked if we can withdraw cash from a credit card, the answer may seem convenient and easy, but it comes with certain charges that make it an expensive option. Here are some of the costs associated with a cash advance:
1. Cash advance fee
This is the fee your card issuer charges every time you withdraw money using your credit card. Typically, it ranges from 2.5% to 3% of the transaction amount, subject to a minimum amount of Rs 250 to Rs 500. This fee is added to your credit card bill and reflected in your statement.
2. Finance charges
These interest charges apply to the cash advance amount from the transaction date until you pay it back in full. Unlike regular purchases, there is no interest-free period for cash advances; the interest starts accruing on the day of the withdrawal. The interest rate for cash advances is usually higher than the regular purchase rate and can vary from 2.5% to 3.5% monthly.
3. ATM fee
This is the fee charged by the ATM operator for using their services. If you use an ATM belonging to your bank or network, you may not have to pay this or a lower fee. However, if you use an ATM that belongs to another bank or network, you may have to pay a higher fee. This fee can range from Rs. 17 to Rs. 25 per withdrawal. This fee is deducted from your account balance during the transaction.
4. Late payment fee
This is the fee your card issuer charges if you fail to pay at least the minimum due amount on your credit card bill by the due date. This fee can range from 15% to 30% of the outstanding balance. This fee can increase your debt and negatively affect your credit score.
Must Read: What is a Credit Card Billing Cycle?
Does cash advance harm your credit score?
Using a cash advance to withdraw money from a credit card does not directly affect your credit score but can indirectly impact it through various factors. Here are some of the ways a cash advance can affect your credit score:
1. Credit utilisation ratio
This is your total credit card balance ratio to your total credit limit. It is one of the most important factors that determine your credit score. A high credit utilisation ratio indicates that you use too much of your available credit and may have difficulty paying it back. A cash advance increases your credit utilisation ratio and lowers your credit score.
2. Payment history
This is another vital factor that determines your credit score. It reflects how timely and consistently you pay your Kotak811 Dream Different Credit Card bills and other loans. A late or missed payment can damage your payment history and lower your credit score. A cash advance increases your monthly payment amount and makes it harder to pay on time.
3. Credit mix
This is the diversity of different types of credit accounts that you have, such as loans, mortgages, credit cards, etc. It shows how well you can manage different kinds of debt obligations. Your credit score can rise with a good mix of credit. A cash advance does not add to your credit mix; it only adds to your existing Credit Card debt.
Additional Read: Best Credit Card for Movie Tickets In India
What are the alternatives to a cash advance?
A cash advance is costly and risky if you get cash from your credit card. It should be used only as a last resort and in emergencies. If you need cash for other purposes, you should consider some of the alternatives to a cash advance, such as:
1. Debit card
A debit card is linked to your bank account and allows you to withdraw money from your account balance at an ATM. It does not incur any interest or fees, except for the ATM fee, which may be lowered or waived if you use your bank's ATM. A debit card is a safer and cheaper way to get cash than a credit card.
2. Personal loan
A personal loan is a type of unsecured loan that you can borrow from a bank or other financial institution for various purposes. It has a fixed repayment term and interest rate, which may be lower than the cash advance rate. A personal loan can help you meet your cash needs without affecting your credit card balance or credit score.
3. Overdraft facility
An overdraft facility is a feature that allows you to withdraw money from your bank account, even if your balance is zero or negative, up to a certain limit. It acts as a short-term loan you must repay within a specified period, usually within a month. It may charge a nominal interest rate and fee, which may be lower than the cash advance rate and fee. An overdraft facility can help you avoid overdrawing your account and paying penalty charges.
Final thoughts
The answer to the question, Can I withdraw money from a credit card? It is a simple yes. It's an easy way to get cash in an emergency but has some drawbacks. You should only use this option as a last resort and pay back the amount as soon as possible to avoid accumulating debt.
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