Before withdrawing cash from a credit card, know these things: interest is charged daily and a one-time charge of 2 to 3%.

Key Facts to Know Before Using a Credit Card for Cash Withdrawal

Withdrawing cash using a credit card may seem convenient during urgent situations, but it is also one of the costliest forms of borrowing. When a user withdraws money through an ATM, a bank branch, or even through a card-linked mobile app, the transaction is treated as a cash advance. While this facility provides instant access to funds, it comes with multiple charges and daily interest, making it important for consumers to understand its true cost before using it.

What Exactly Is a Cash Advance?

A cash advance functions like a short-term loan within the card’s existing credit limit. However, it differs from regular card transactions in one critical aspect—interest starts accumulating from the very day the withdrawal is made. Unlike standard purchases, cash withdrawals do not come with any grace period. Even if the billing cycle ends later, the user still pays interest for every single day until the full outstanding amount is cleared.

Most banks allow only a portion of the overall credit limit for cash withdrawal. Typically, the cash advance limit ranges from 20% to 40% of the total credit limit. For instance, if a cardholder has a limit of ₹1,00,000, they may only be able to withdraw between ₹20,000 and ₹40,000.

How the Charges Are Applied

Cash advances are often considered the most expensive way to borrow through a credit card. The key charges include:

1. Interest Charges

• Banks generally levy 1.99% to 4% interest per month, which translates to 25% to 48% per year.

• Interest is charged daily, starting from the withdrawal date, until the entire amount is repaid.

2. Cash Advance Fee

• A one-time fee of 2% to 3% of the withdrawn amount is applied.

• Most banks have a minimum fee threshold—usually between ₹300 and ₹500.

For example, if you withdraw ₹10,000, you immediately pay a fee of ₹300–500, and then a daily interest charge continues until the full amount is repaid. On top of these charges, GST is also added, further increasing the total cost. If you make a withdrawal in the middle of your billing cycle and pay on the due date, you still owe interest for all the intervening days.

When Cash Advance Can Be Useful

Despite the high charges, a cash advance can be helpful in certain emergencies. These include:

• Immediate hospital deposits

• Urgent house repairs

• Situations where only cash is accepted and digital payments are not an option

• Quick transfer to a savings account using card-linked apps

Many banks now allow users to move the cash advance amount directly into their bank accounts through their mobile apps. This process is typically faster than applying for a personal loan, making it suitable for urgent needs. However, this option should be used only in genuine emergencies and repaid as soon as possible.

Potential Drawbacks to Consider

Using a cash advance frequently or without a repayment plan can lead to several issues:

• Interest continues even after part payment; it stops only when the full amount is cleared.

• No reward points or cashback apply to cash withdrawals.

• Some banks suspend the interest-free period on new purchases until the cash advance amount is settled completely.

• Frequent cash withdrawals signal financial stress and may impact your credit profile or even reduce your future loan eligibility.

Smarter and Cheaper Alternatives

Before withdrawing cash using your credit card, consider exploring these options:

• Loan-on-Card: Some banks convert a portion of your credit limit into an EMI-based loan at lower interest rates.

• Pre-approved personal loan or overdraft facility: These options often carry lower interest charges and are easier to track.

• Salary advance from employer or family assistance: These are often interest-free and more cost-effective.