What is Credit Card cash withdrawal?

Introduction

Which features do you prioritise while choosing a credit card? Is it the interest rate, the rewards on offer, or the bank’s mobile banking services? While these are features that you must prioritise, there is another key feature that you must have in your credit card if you wish to access cash urgently in the future – the credit card cash withdrawal facility.

The credit card cash withdrawal facility helps customers withdraw cash using their credit card. This facility has an upper limit as customers can only withdraw cash up to a predefined limit set by the bank. However, it helps customers access cash with convenience, directly through their mobile banking apps.  

What is a credit card cash withdrawal?
 

A credit card cash withdrawal is the procedure that allows you to withdraw cash using your credit card. You cannot withdraw an amount equal to your entire credit limit using your card. The ‘credit card cash limit’ is the limit up to which you can withdraw cash using it. You need not complete any additional documentation to avail this feature as it can be availed directly through the bank’s mobile app.  However, keep in mind that a credit card cash withdrawal comes with interest charges from the day of withdrawal along with the fixed cash advance charges which could add up to the total cost of borrowing significantly.

To avoid hefty charges, you can opt for the IDFC FIRST Bank FIRST Power+ credit card that comes with 0% interest charges on cash withdrawals up to the due date. All you need to do is to pay the cash advance charge of ₹199+ GST. In addition, the FIRST Power+ credit card offers up to 6.5% savings on fuel purchases amounting to an annual savings of up to ₹18,500, which is enough to buy 175+ litres of fuel. Expenses like groceries, utility bills, and FASTag recharge also comes with up to 5% savings as rewards with this card and you can enjoy welcome benefits worth ₹2,500 on this card.

Factors to consider while withdrawing cash through credit card
 

Here are the key factors that you should consider while withdrawing cash using your credit card –

• Check the charges involved in a credit card cash withdrawal: As mentioned before, the credit card cash withdrawal feature requires customers to bear additional fees. Furthermore, credit card companies and banks charge a higher interest rate for card withdrawals. You must, therefore, check all the fees involved in the process of initiating a credit card cash withdrawal before doing so. You should also check the overall cash advance limit extended to you through the card.
  
  
• You will not earn any reward points after making a cash purchase: One of the most attractive benefits of signing up for a credit card are the reward points on offer. Rewards points help customers access various services at a less expensive price via cashback offers and air miles, etc. However, you must note that you will not earn any reward points if you make any purchase using the cash withdrawn from your credit card. Regardless of the amount you withdraw, you cannot earn any reward points by making a cash-based transaction. You must, therefore, use your credit card to withdraw cash only when you desperately need cash.
  
  
• Credit card cash withdrawals might affect your credit score negatively: Withdrawing cash using your credit card might not directly impact your credit score. However, two aspects of credit card cash withdrawal might impact it negatively – the lack of a grace period and high interest rates. You must pay more than the minimum amount due every month to avoid a drop in your credit score. Lenders view late payments as a sign of financial instability. You can also automate your credit card repayments to solve this issue. IDFC FIRST Bank’s mobile banking app helps customers do this using the Autopay feature on its app.  
  
  
• You will not benefit from a grace period for repaying your credit card cash dues: You must note that you will have less time to repay your credit card cash withdrawal dues when compared to other purchases if you withdraw cash close to the billing date. Credit cards cannot replace your emergency funds. You must build a significant corpus of emergency funds before signing up for a credit card. You must save separately for all forms of financial emergencies.
  
  
• Frequent cash withdrawals can impact your creditworthiness: A high utilisation of your cash advance limit can negatively impact your creditworthiness. If you withdraw high amounts using your credit card, the bank might interpret it as financial distress and view you as a high-risk borrower. This is also why frequent cash withdrawals are generally not recommended for credit card holders. Withdrawing cash frequently can have a negative impact your capacity to sign up for loans in the future. You must consider this point, too, before initiating a credit card cash withdrawal.

Why choose the credit card cash withdrawal facility?
 

Here are some reasons why you must consider opting for a credit card cash withdrawal facility –

• You can access cash quickly: If you are in a situation where you cannot immediately arrange funds to attend to an emergency, the credit card cash withdrawal facility can help you access cash quickly. You can access this cash by visiting any ATM.
  
  
• The credit card cash withdrawal facility is fast and easy to use: You can visit your bank’s website or download its mobile banking app to use the credit card cash withdrawal facility. You can also check your credit card’s cash withdrawal limit and repayment terms by reading your credit card statements.
  
  
• You can access this facility at most leading banks: Most leading banks offer the credit card cash withdrawal facility. If you are an IDFC FIRST Bank customer, you can benefit from interest-free ATM cash withdrawals for up to 48 days on credit cards.

What is the permissible cash withdrawal limit?
 

The permissible credit card cash withdrawal limit ranges between 20% and 40% of the overall credit card cash limit. If your overall credit card limit is ₹1,00,000, then you can withdraw anywhere between ₹20,000 and ₹40,000 as cash. The remaining amount can only be used for credit card transactions. The credit card withdrawal limit changes based on your spending patterns, repayment behaviour and credit history. Some banks, as mentioned earlier, may charge a ‘credit advance fee’ for cash withdrawals made using other bank’s ATMs.

How to withdraw cash using a credit card?
 

Here are the steps you must follow to withdraw cash using a credit card –

1. Insert the card into the ATM’s slot.
2. Enter your PIN (personal identification number), the secure code provided by the card issuer.
3. Select “cash withdrawal” on the ATM screen.
4. Specify the amount. Be mindful of your credit advance limit while specifying the amount.
5. Confirm the transaction.
6. Collect your cash.

Generally, credit card users are allowed up to five free ATM transactions per month. This feature might change based on the card-issuer, your location, or on the credit limit offered through the card. While withdrawing cash from an ATM, you will also be charged an ATM maintenance or interchange fee. The RBI (Reserve Bank of India) recently increased this fee from ₹15 per transaction to ₹17 per transaction.

Advantages and disadvantages of credit card cash withdrawals
 

Here are the key advantages of opting for a credit card cash withdrawal –

• You can get immediate access to funds: One of the key advantages of credit card cash withdrawal is the ability to get immediate access to funds. Instead of draining your savings, you can use your credit advance limit to attend to an unforeseen emergency.
• You can manage your credit card expenses easily: You can request on-the-spot access to cash using a mobile banking app like the IDFC FIRST Bank mobile banking app or internet banking services.

Here are the main disadvantages of a credit card cash withdrawal –

• You need to pay high interest rates: Interest rates are particularly high for credit card cash withdrawals.
  
  
• Banks impose cash advance fees on credit card withdrawals: While this is a disadvantage, you can tackle it by choosing a bank that charges a low cash advance fee. For instance, IDFC FIRST Bank charges a low cash advance fee of ₹199 per transaction on credit card withdrawals.
  
  
• You cannot benefit from a grace period: Credit card cash withdrawals lack a grace period. The interest rate, however, begins accruing immediately. This can lead to a faster accumulation of debt.

Difference between a credit card cash limit and credit limit
 

If you have a credit card or wish to opt for one, you must know the meaning of two important terms: ‘credit card cash limit’ and ‘credit limit’. A credit card’s ‘credit limit’ is the maximum amount that you can spend using the credit card. The card-issuing bank extends a ‘credit limit’ to you based on your creditworthiness, age, and other specific criteria determined by the bank.

Credit card cash limit or ‘credit card cash advance limit’ is a percentage of your credit limit that is meant only for cash withdrawals. Generally, your credit card cash limit is lower than your overall credit limit. You can use this credit limit to withdraw cash using your credit card. Cash advances are usually a more expensive form of borrowing since banks charge higher interest rates and higher fees while offering this feature.

Are there any alternatives to a credit card cash withdrawal?
 

There are multiple alternatives to a credit card cash withdrawal –

• You can opt for a credit card loan program: The card-issuing bank sanctions a credit card loan over your existing credit limit. The application and repayment procedure for this loan is similar to any other loan with varying interest rates depending on your credit card and loan amount.
  
  
• You can take a personal loan: These are unsecured loans that do not require you to pledge any collateral while applying for them. Personal loans, too, can be managed directly through the bank’s mobile banking app. They are easily disbursed and follow a paperless signing-up process.
  
  
• Collateral loans or secured loans can help you overcome a financial emergency: If you wish to opt for a secured loan, you can take a collateral loan that requires you to pledge collateral to receive the loan amount. You can also pledge financial assets such as mutual funds, FDs, and stocks while applying for a collateral loan.
  
  
• You can ask your employer for an advance in your salary: Your employer might be willing to do so if you have been working for the company for a long time.

Conclusion

The credit card cash withdrawal facility is a convenient feature that enables you to access funds quickly during emergencies. However, it is essential to use this option judiciously, keeping in mind the associated high interest rates, lack of a grace period, and potential impact on your creditworthiness. Use credit card cash withdrawals as a last resort for optimal financial health or opt for IDFC FIRST Bank credit cards like the FIRST Power+ credit card that offers a low cash advance charge and zero interest charges up to the due date on cash withdrawal.