Why You Must Not Opt For a Credit Card Advance?

Let’s say you have an urgent cash requirement. A card swipe, a cheque or a balance transfer won’t do; only hard cash will suffice the purpose. Unfortunately, though, you do not have enough cash. Your debit card doesn’t have the requisite funds and the nature of the emergency is such that you do not have enough time to borrow a Personal Loan. So what do you do then? “Oh wait! I do have a Credit Card in my wallet! I can always withdraw cash from it, right? Problem solved!” is the riposte most of you may come up with. But hang on a second! Despite how easy and convenient as it sounds, a Credit Card cash withdrawal may not be such a good idea. To spell it out more clearly, it would do more harm than good for you. Wait, what? Yes! You read that right! Read on to find out just why.

No interest-free grace period

Your Credit Card bills get generated on a fixed date every month. Let’s say if the date were the 5^th of every month, then the bill for all your transactions from 5^th of July to the 4^th of August would be raised on the 5^th August (the billing date). You are not liable to pay any amount in the form of interest for Credit Card purchases and bill payments before they are billed. Besides this, you usually get a 21 to 25 day interest-free grace period which commences from the billing date. Any amount you repay during this period becomes interest-free. So in effect, you get to enjoy a 25 to 50 day interest-free period from the day you make a transaction from your SBI Credit Card or other Credit Card.

This, however, does not apply to cash withdrawals. A Credit Card cash advance denies you the privilege of enjoying an interest-free period. Moreover, the interest on the borrowed amount gets accrued right from the day you make the withdrawal and not from the billing date. And considering that Credit Card interest rates are about 2.5% per month, you would probably pay interest at the rate of 5% or above in that 25-50 day period which would have otherwise been interest-free.

You could, however, expect some sort of relief if you own a low interest bearing Credit Card. You could apply for Credit Cards Online in India on www.mymoneymantra.com, India’s leading online financial service provider and the premier destination for ‘low interest, high limit’ Credit Cards. Their team of professional selects only the Top Credit Cards for you to ensure that you enjoy maximum credit facility at minimum interest rates.

Higher interest rate

Not many people know this, but a Credit Card cash advance bears a higher interest rate than other Credit Card transactions. The interest rate on cash withdrawals may vary from 24% to 48% depending upon the card issuer. In contrast, all other Credit Card transactions carry an interest rate of 12% to 36%. The difference is about 1% per month; a considerable amount by any standards. So not only do you pay interest for a longer time, but you also pay it a higher rate. Needless to say, the affordability of the transaction takes a serious hit!

Hefty transaction fees

If the absence of an interest-free duration of time and a higher interest rate didn’t do enough to convince you of the impracticality and unaffordable nature of a Credit Card cash advance, here’s something more. A Credit card cash advance imposes a hefty transaction fee on you. The transaction fee is usually 2.5% of the amount withdrawn but some card issuers may charge 3% too. This one-time payment is over and above the interest charged on the withdrawal.

If you were to combine the exorbitant interest rate and the transaction fees, you’d have to repay 8-10% more than the amount you borrowed if you were to make the repayment within 2 months from the transaction date. And that is about as much as a Fixed Deposit would pay you in a year. Just saying!

It may hurt your credit score

Let’s just keep the financial viability of this practice aside for a moment. Credit Card cash advances cause more problems than just that. You’d usually take a cash advance as a last resort. And the fact that you ‘had’ to use it, which implies a paucity of funds and a lack of low-interest alternatives, sends out bad signals to your lenders. Utilising your credit limit to its maximum is also not viewed in great light. These factors may decrease your creditworthiness and hence your credit score.

Alternatives for cash advances

Before you walk down to the nearest ATM to take a cash advance on your card, take some time out to consider other alternatives. See if you can borrow a Personal Loan. If you have some unused furniture or other such spare items, sell them off. Ask your friends and family members if they could help.

If your car breaks down and the mechanic won’t accept card payment, or if there’s some sort of a medical emergency and you have not carried your debit card along; a cash advance becomes more of a compulsion than an option. Such situations aside, you are better off staying as far away from a cash advance as you possibly can!

Also Read: 5 Best Credit Cards for Salaried Individuals in India

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers.