Credit cards can be an extremely convenient way to manage your finances, but at the same time, they can be very expensive and risky. For example, while it is easy and convenient to get money by credit card, it can cost you a lot of money. Additional interest, as well as other charges such as processing fees, finance charges, cash advance fees, etc. do not make this option a preferable option for people.
Credit cards are known to be an emergency line of credit and can act as a financial safety net to cover an unforeseen cost that arises during a cash flow crisis. However, this comes at a cost.
Here are the fees that credit cards incur when withdrawing cash;
- Interest is charged at a certain monthly percentage decided by the bank at the time of purchasing the card. Interest will be charged from the date of the transaction until the borrower makes the full repayment. Usually, an interest rate of 2.5-3.5% per month is charged by banks on all cash advances, or about 30-42% per annum. However, this rate varies from bank to bank and card to card.
- Whenever a cardholder uses their credit card to withdraw money, a cash advance fee is charged. This also typically ranges from 2.5 to 3 percent of the amount withdrawn, or a minimum amount of Rs 300 to 500. Note that these fees also vary from bank to bank.
- A finance charge is levied on the borrower from the date of the cash withdrawal until full repayment of the amount. Keep in mind that credit card holders must also pay finance charges on cash advance fees at a rate similar to that charged on the amount withdrawn.
- Reward points promised with the use of credit cards are not offered with cash transactions. Therefore, regardless of the transaction amount, you will not be entitled to any reward points for cash withdrawals by credit card.
- Credit cards are notorious for their interest-free period, however, with withdrawing cash using a credit card, the usual 45-day interest-free period is not valid. Therefore, with cash advances, interest accumulates until it is fully repaid.