When Bivash Banerjee was offered a credit card by his bank, he gladly took it. When the card was delivered, he was surprised to find out that the card offered him a cash advance facility of Rs. 50,000. Bivash wanted to know more about the facility
before he availed of it. He read up about it and this is what he found.
Easy to withdraw:
A credit card can be used to make cash withdrawals much like a debit card. You can always get the cash you need by going to the closest ATM. Any bank's ATM can be used to withdraw cash. However, some banks
could have a different cash advance cost if you use an ATM from another bank to get cash.
Interest Rates
Banks treat cash advances on credit cards as unsecured loans. Hence, the interest rate generally ranges from 2.5% to 3.9% per month. This comes to about 30% - 46% interest per year. Interest is charged on a
pro-rata basis. This means that unlike regular transactions on credit cards where the interest is applicable after the due date, with cash advances, interest is charged from the day you withdraw cash.
[Also Read: Enjoy easy and convenient transactions with credit cards]
Transaction Fees
Banks also charge a transaction fee on cash advances. These range from 2.5%-3% of the amount withdrawn. This fee also attracts interest.
Cash Advance Limit
Most banks limit the amount of cash you can withdraw on your credit card. Typically, this is about 40% of your credit card limit.
Impact on Credit ScoreA cash advance does not directly impact your credit score as it is not reported separately to the credit bureaus. However, it can have an indirect impact in two ways. Firstly, it will increase your credit
utilisation ratio, which tends to be viewed negatively while calculating credit scores. Secondly, if you fail to pay the minimum amount due, then it hurts your credit score.
Points to remember when withdrawing cash against your credit card
Withdrawing cash against credit card is a useful feature if you need money in an emergency but have no balance in your Savings Account.
Hence, do it sparingly. If you do withdraw cash, always repay it as soon as possible.
You could consider taking a personal loan where the interest would be much less than those charged on cash advances on credit cards. Another option is to check with your card-issuing
bank if the cash advance can be repaid using EMIs (Equated Monthly Installments). These EMIs will also attract a lower interest rate than a cash advance.
Axis Bank offers a range of credit cards with various benefits tailored to its customers' preferences. Customers are also entitled to Edge Reward points depending on their spending patterns. You can redeem
them for a range of attractive deals and offers. Know more about Axis BankCredit Cards online.
Disclaimer: The Source, a content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision. Names mentioned in this article are fictitious in nature and only for explanatory purposes.
