Everything you must know about credit card cash advance
Will I be able to use the credit card in the same way that I do with my debit card? In many ways, the answer is YES. There is not much difference in the use of a credit card and a debit card. When it comes to withdraw cash, you can make a withdrawal from your credit card as well. This facility is known as Cash Advance. Further in this article you will come to know how to transfer money from credit card to bank account.
- Difference between a credit card and debit card
- Cash withdrawal
- How does the “Cash Advance” facility work?
- Does this facility come with a cost?
- Advantages of Cash Advance facility
- Disadvantages of Cash Advance facility
- Cash Advance Facility – Is it good or not?
- Alternatives to Cash Advance Facility
- Final thoughts
Difference between a credit card and debit card
In the case of a credit card, you can spend up to an approved limit. A credit card is a loan that you have to repay on time. A debit card allows you to spend up to the balance you have in your savings or current account. It is your money, and there is no question of repayment.
Many people have this question in their minds. “Can I withdraw cash from an ATM using my credit card?” The answer is a big YES. You can withdraw cash using your credit card. In banking circles, you refer to this facility as “Cash Advance.”
How does the “Cash Advance” facility work?
Every credit card has a specific portion of the limit earmarked as a “Cash Advance” limit. Generally, it is around 20% to 30% of the credit card limit. Remember that it is an interchangeable limit. You have the freedom to use this portion as your regular credit limit as well.
You can use the Cash Advance facility in two ways.
a) Withdraw cash from ATMs
Use your credit card in the same way you use the debit card to withdraw money from ATMs. However, you cannot withdraw more than your Cash Advance limit.
b) Apply for Demand Drafts
Request your bank for a demand draft in your favour. Many banks allow this facility to their customers.
Does this facility come with a cost?
The Cash Advance facility does not come free. Every cash withdrawal comes with a cash advance fee, usually 2.5% of the advance amount subject to a minimum of Rs 500 at a time. Secondly, the amounts you withdraw as cash advance attracts interest @ APR (annual percentage rate) from the day you use this facility up to the day of payment. Note that this interest is payable irrespective of the fact that you have a regular repayment record without carrying forward any balance to the next month.
In case you use the demand draft mode of withdrawal, the banks charge commission as applicable to demand drafts. It depends on the amount you withdraw. Under such circumstances, you do not have to pay the cash advance fee. However, this withdrawal also attracts interest @ APR in a similar fashion to the cash advance facility.
Advantages of Cash Advance facility
- You get money in an emergency without having to depend on a third person. It proves handy when you are out of town and do not have access to any other source.
- It is similar to a personal loan. The difference is that you pay higher interest and do not have to go through a credit check. It is because the cash advance limit is within the overall credit card limit.
- You can use the cash advance facility to pay your other loan instalments. However, you have to withdraw cash and deposit into your bank account. It is not possible to transfer funds directly to your loan accounts.
Disadvantages of Cash Advance facility
- The most significant disadvantage of cash advance facility is that it incurs a cost. Apart from the cash advance fee, you have to pay interest @ APR. Thus, it is a drain on your funds. Considering the present rates of APR, the interest amount can be substantial.
- Unlike other purchases made using the credit card, the cash advance facility does not have a grace period (interest-free window). The interest clock starts ticking from the moment you withdraw cash. Hence, it is advisable to repay the cash advance as soon as possible without even waiting for the credit card bill.
- There is no concept of a minimum amount due in case of a cash advance facility. The rules stipulate that you pay the entire cash advance amount with the bill. The minimum amount due concept applies to the other online and offline purchases alone.
Cash Advance Facility – Is it good or not?
The answer to this question depends on your requirements. You know the charges you incur when you avail this facility. If your needs are critical, you can opt for this facility, especially if you do not have any immediate alternative arrangements in place.
Alternatives to Cash Advance Facility
- Personal loan – One of the best options to cash advance facility is to apply for a personal loan. Depending on your eligibility, you have access to immediate funds. The rate of interest is lower in comparison. The repayment schedule is comfortable as well. However, the banks go for a credit check. It affects your credit rating. Today, short-term personal loans are available for periods as low as three months. It is any day a better alternative to cash advance facility on your credit card.
- Borrow from friends and relatives – It is an awkward choice, but better than the cash advance facility.
- Transfer to e-wallets – This alternative seems to be the best one available today. You can recharge your PayTM or other e-wallets using your credit card and transfer the money to your savings account. It is better to check out with PayTM whether they allow this facility nowadays.
A ‘Cash Advance’ facility is a handy one, but it is better if you use it judiciously. It is advisable to check out all other options before using the cash advance facility.