Why We Should Never Withdraw Cash with a Credit Card?

Why we should Never Withdraw Cash with a Credit Card

Withdrawing cash using a credit card is one of the costliest financial mistakes you can make! why you should avoid it at all costs: Why You Should Never Withdraw Cash with a Credit Card. Key Points on Credit Card Cash Withdrawals

1. High Cash Withdrawal Charges

• • Banks charge 2.5% to 3% of the withdrawn amount, with a minimum charge of ₹250–₹500.
  • Even if you withdraw a small amount, you still pay the minimum fee.
  • Fees and Charges:
    • Cash Advance Fee: Typically around 2.5% of the withdrawal amount (min ₹250-₹500).
    • Finance Charges: Monthly interest ranging from 2.95% to 3.5%, translating to annual rates of 40.2% to 46.78%.
    • No Grace Period: Interest accrues from the date of withdrawal

2. Immediate Interest Without Grace Period

• • Unlike normal credit card transactions, cash withdrawals attract interest from Day 1—there’s no interest-free period.
  • Interest rates range from 36% to 48% per annum (around 3% to 4% per month).

Example:

• • ICICI Bank charges 3.40% per month (i.e., 40.8% annually) on cash withdrawals!
  • If you withdraw ₹10,000 and repay after 30 days, you might end up paying ₹10,400 or more!

3. Reasons Not to Withdraw Cash Using a Credit Card

• • High Costs Unlike card purchases, cash withdrawals incur immediate interest and withdrawal fees. Example: R2.20 per R100 withdrawal at Nedbank ATMs, and higher fees at non-Nedbank ATMs.
  • No Budget Facility Unlike purchases that can be converted into structured repayments (6 months – 3 years), ATM withdrawals require immediate repayment.
  • No Chargeback Protection : Credit card purchases offer dispute protection (chargebacks), allowing refunds for faulty goods. With cash withdrawals, you lose this protection.
  • No Reward Points : ATM withdrawals don’t earn loyalty points, reducing the benefits of using a credit card.
  • Security Risk : Carrying cash increases theft risks, making electronic transactions safer.

Pros of Withdraw Cash with a Credit Card: Cash Advance Feature Allows us to withdraw cash from ATMs using a credit card but comes with high fees and interest rates.

1. • Instant cash availability.
   • No approval or documentation needed.
   • No spending restrictions.

Cons of Withdraw Cash with a Credit Card:

1. • High charges.
   • No reward points.
   • Immediate interest accrual.

4. No Reward Points & Increased Utilization Ratio

• • Cash withdrawals don’t earn rewards or cashback.
  • A high credit utilization ratio can hurt your credit score, making future loans costlier.

5. Possible Credit Limit Reduction :

   Frequent cash withdrawals can signal financial distress to banks, leading to a credit limit reduction or even account closure. Ways to Minimize Fees:

1. • Avoid cash withdrawals unless absolutely necessary.
   • Repay the amount as soon as possible.
   • Withdraw only the minimum required.

6. Alternatives to Avoid Credit Card Cash Withdrawals 

If you’re in a financial crunch, it’s often wiser to explore alternatives like a personal loan (which has lower interest rates), borrowing from a trusted friend or family member, or even a salary advance.

• • Use Debit Cards – Withdraw cash from your bank account.
  • Emergency Loan or Overdraft – Lower interest rates than credit card cash withdrawals.
  • UPI or Digital Payments – Instead of cash, try digital transactions. Never use your credit card at an ATM unless it’s an absolute emergency! The costs far outweigh the benefits.
  • Swipe your credit card directly for payments or use it online, but avoid treating it like a cash facility.