Understanding Interest Rates for Credit Card Cash Withdrawals: A Comprehensive Guide

Posted on Thursday, May 16th, 2024 | By IndusInd Bank

Credit cards offer a convenient means of accessing funds when cash is not readily available. Moreover, one of the lesser-known benefits of using credit cards is also their capability to facilitate cash withdrawals from ATMs. This feature offers a convenient fallback option when you urgently need hard cash, especially when alternative payment methods are unavailable.

However, it’s essential to [1] recognise that this convenience comes with costs and limits. It’s important to find answers to questions like “What is the available cash limit on my credit card?” and more. Thus, while credit cards offer the flexibility to access cash on the go, weighing credit card cash withdrawal charges is crucial to making informed financial decisions.

In this guide, we will cover credit card ATM withdrawal charges in detail.

Minimum Credit Card ATM Withdrawal Charges

When you opt for cash withdrawals using your credit card, you must pay a charge/fee on each transaction. Typically, this fee ranges from 2.5% to 3% of the total transaction amount, with a minimum charge set between Rs 250 to Rs 500. Your credit card issuer imposes these charges in addition to any other fees associated with the transaction.

As a credit card holder, it’s imperative for you to carefully review the terms and conditions provided by your bank regarding credit card cash withdrawal charges. This is how you can avoid surprises and effectively plan your finances.

Should You Use the Cash Withdrawal Limit in Credit Cards?

Before we get into the depth of whether to use this limit or not, let’s define it. The cash withdrawal limit refers to the maximum amount of cash that you can withdraw using your credit card. In other words, this limit specifically pertains to the cash that you can obtain through ATM withdrawals using a credit card. It sets a separate boundary for accessing cash through the credit card, with distinct terms and conditions.

While the cash withdrawal limit and the credit card limit are related, they serve different purposes and function independently. The credit card limit refers to the maximum amount of credit extended to the cardholder for making purchases, including both online and in-store transactions. It represents the total sum the cardholder can spend using their credit card before reaching the limit set by the issuer.

Cardholders need to be aware of their cash withdrawal limit, as exceeding this limit can incur additional fees and higher interest rates compared to regular purchases made with the card. Additionally, cash advances usually start accruing interest immediately, unlike regular purchases, which often have a grace period.

The interest rate on cash withdrawal from a credit card is applicable immediately. Before you use the cash withdrawal limit on credit cards, you should:

• Evaluate alternative sources of funds and their associated costs. Consider whether using cash from your credit card is the most cost-effective option.
  
• If possible, explore other avenues, such as using a debit card, obtaining a personal loan, or accessing emergency savings.
  
• Be mindful of your repayment capabilities. Since credit card cash withdrawal charges begin accruing immediately, failing to repay the withdrawn amount promptly can lead to significant interest over time, potentially increasing the financial strain.

Ultimately, the decision regarding using the cash limit in credit cards is yours. It should be based on a careful assessment of your financial circumstances, weighing the urgency of the need against the costs and implications involved.

Also Read: Understanding Credit Card Settlement and Its Process

Does Cash Withdrawal on Credit Cards Affect Credit Scores?

Contrary to common belief, credit card cash withdrawals do not influence your credit score directly. When you make a cash advance, the card issuers usually treat it as a regular transaction and do not report it separately to credit agencies. However, you must understand that the associated costs can indirectly affect your financial health.

The high credit card cash withdrawal charges can pose challenges when making monthly payments. Failure to repay the cash advance amount promptly can lead to negative repercussions on your CIBIL score. Late or missed payments will be reported to credit agencies, indicating potential financial strain and impacting your creditworthiness.

Should You Switch Credit Cards If the Cash Withdrawal Charges are High?

When faced with high credit card ATM withdrawal charges on your current credit card, it’s natural to consider switching to a different bank. However, before making any decisions, you must weigh the potential benefits of switching credit cards. Here are a few things you can consider:

• Compare the cash withdrawal charges of your current credit card with those offered by other cards in the market. Look for cards with lower fees.
  
• Evaluate the overall benefits offered by both your current card and potential alternatives. Consider rewards programs, cashback offers, annual fees, and additional perks to determine whether switching cards align with your financial goals and spending habits.

Looking for a credit card with low cash advance charges and no joining or annual fees? Apply for an IndusInd Bank credit card today!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.