Credit cards are an easy way to handle finances. But they become expensive and risky in no time. You find yourself unable to figure out where you went wrong. For instance, you can easily withdraw cash from your credit card but it comes with heavy charges including finance charges, processing fees, cash advance fees, and more.
If you have kept a credit card for your emergency needs, then you should be aware about the cost that it bears.
Here are the charges that you should know about before you take a cash advance on your credit card. Read carefully because these charges can increase your credit card exponentially.
Interest
With normal purchases, you get an interest free period of 45 days BUT NOT with a cash withdrawal.
When you withdraw cash from your credit card, the bank levies interest charges from the date of the transaction till the time you make a payment in full. Normally, an interest rate of 2.5% - 3.5% is charged on all cash advances by banks. This translates to a hefty 30% to 42% interest rate per annum. The rate of interest varies from bank to bank and card to card.
Advance Fees
Bank levies an advance fee every time you withdraw cash from your credit card. It ranges from 2.5% to 3% of the amount you have withdrawn or a minimum of INR 300 to 500 .
Finance Charges
You also have to bear finance charges that are levied from the date of cash withdrawal to the date when you make the payment in full. Banks also charge finance charges on the cash advance fees and the rate is similar to the one charged on the withdrawn amount.
No Reward Points
The lucrative reward points that you earn on credit card shopping are NOT offered with a cash advance. Hence, you will earn no reward point irrespective of the amount you withdraw from your credit card.
Credit cards can save you on a rainy day. However, it is crucial to know the charges you are liable to pay in the future. It is better to not withdraw cash from credit card until and unless you have no other option.