Your credit card has a multitude of purposes. You can use it to improve your credit report, spread the cost of purchases, and it can be handy in your hour of need.
Some emergencies and situations require cash, and your credit card can help you with this too. Although this isn't one of the primary purposes, you can withdraw money directly from your credit card.
Knowing your credit card can help you in these situations can be a huge relief.
In this article, you'll learn about credit card cash withdrawals, cash advances, and the different types of cash transactions you need to look out for.
How to Withdraw Money From a Credit Card
Firstly, you should know that withdrawing cash from a credit card is more commonly known as a cash advance.
So, if you see this phrase, it's just the technical term for credit card cash withdrawals.
There is a lot of information you need to know about cash advances, and it may sound as easy as walking up to a cash machine, popping your card inside, and deciding how much cash to withdraw. And technically, it is, but it's more complex than withdrawing cash from your everyday bank account.
Most credit card providers allow you to use your credit card to withdraw cash via a cash machine. However, banks generally don't recommend cash advances, as they're typically more expensive than taking money out with your debit card.
Before we begin, it's vital to keep in mind that cash withdrawals from a credit card is not the same as simply using your debit card. We'll go over this in more detail shortly, but it's worth getting familiar with this distinction now anyway.
Without further ado, let's break down a cash advance limit vs balance transfers:
Cash Advance
This is one of the main uses of credit cards in general, where you're essentially just borrowing cash from against your credit limit.
Yes, this is a fairly accessible and common option – just think how many ATMs you see on an everyday basis – but you should use a cash advance as a last resort, given how high some of the fees and interest rates are.
When you need to withdraw cash using this method, you'll first have to find an ATM that'll accept credit cards as a form of tender. After inserting your card and entering your PIN, simply tap the cash advance option and you'll be prompted to type whatever amount it is you're looking to withdraw.
Once you've done that, voilà! The cash will shortly be dispensed – really simple stuff.
As we mentioned though, don't be ignorant to the abundance of charges and interest that comes with a cash advance fee. You'll typically be charged a rate of around 3-5% of the total amount you withdraw every single time you want to do this method, with minimum fees usually being around £3-5.
While this doesn't sound like it'd completely break the bank, the interest rate for cash advances can be significantly higher than the standard rate on purchases, and it begins being charged from the day you withdraw the cash until you pay it back in full.
Balance Transfer
Aside from the cash advance limit, many people also opt for a balance transfer when it comes to withdrawing cash.
This method involves sending all the money from one of your credit cards to another account, like your primary bank account. This is often a cheaper method than the former option, but make no mistake, it also comes with its own set of fees and interest rates.
In addition, this type of transfer is normally most common with those looking to improve their credit score. If you're in debt with one or more credit card providers with high interest rates, you can transfer your balance into another account with a grace period of 0% APR for the first year or so.
This can be a massive help for those struggling to get out of a debt cycle as they aren't being charged interest on the debt they already owe, allowing them to pay it off without even more added fees.
So, how do we actually complete this balance transfer? Firstly, you're going to have to get in touch with your credit card provider and request it. Be wary though, because similarly to the cash advance, you'll have to pay around a 3-5% fee on the amount you transfer.
Because people are often transferring their entire balance from one account to the next, this is no longer just a measly £5 you're paying, but possibly hundreds if not thousands of pounds.
Finally, it's worth mentioning that not every credit card provider gives you the option to perform a balance transfer, as ultimately they'd rather you stayed with them and continue paying the exorbitant interest rates they're profiting off.
Always make sure you're in communication with your credit card provider before attempting to start something like this, as you may find yourself paying extra fees if you don't go through their own red tape and specific channels.
What Separates A Credit Card From A Direct Debit Card?
As promised, let's discuss what exactly makes a credit card unique from your everyday direct debit card.
Definitions
Firstly, credit cards are a financial product that lets you borrow money from your bank or credit card company with the promise of paying it back at a later date with added interest.
The key takeaway here is the word “borrow”, because the money has never actually belonged to you; it's just your turn to use it before having to return it at some point in the future.
In contrast, a debit card is linked to a checking or savings account and only lets you spend the amount of money that's already in your account. Naturally, this is favoured by most people as it utilises the convenience and security of cashless tender but avoids the risk of racking up all the interest charges and penalties that come with credit cards.
Differences
Finances
One of the greatest examples of how these two financial instruments are different from each other is through the way they impact your personal finances.
As mentioned, debit cards only let you withdraw money that's already been sitting there in your account, so the balance in your account is immediately deducted after you're done using the cash machine.
On the other hand, credit cards work similarly as you can have your own balance without being in debt. However, the crucial difference is that you can spend beyond your current means, but you'll have to pay back however much you borrowed at a later date with added interest.
Security Features
Aside from all the bells and whistles that come with credit cards, they do ultimately provide better consumer protection than most debit cards do.
Credit cards are generally safer to use for purchases as they often provide extra fraud protection, and they don't hold their own consumers accountable for any fraudulent charges made on their credit cards.
In contrast, if someone has used your debit card to make random unauthorised purchases, it might take a bit more time and effort in order to recover the stolen funds.
Rewards & Additional Bonuses
And lastly, there are points on the board in favour of credit cards when it comes to receiving rewards and other add-ons. When you partner with a credit card provider, they'll often try to incentivise you to use their card to make purchases by giving you access to their reward programs.
This includes stuff like cashback, points, miles, discounts, and a host of other perks too – all things you wouldn't normally expect to receive with a credit card
Cashback rewards are where you'll receive a percentage of the purchase amount of any given product back as a cash rebate. For example, a card might offer 1-2% cashback on all purchases or higher cashback rates for any purchases you make in a specific category, like groceries or petrol.
In addition, points and miles are another marketing scheme that's offered every time you use your credit card to make a purchase. There's no one set use for them, but these rewards can typically be redeemed for various items, such as travel, merchandise, or gift cards.
For example, a card might offer one point per pound spent on purchases, and once you've accumulated enough of these points, they can be redeemed for airline tickets, hotel stays, or other travel-related expenses.
Factors to Consider Before Withdrawing Cash from Your Credit Card
A cash advance is undoubtedly helpful if you require easy access to cash.
However, due to many factors, which will be listed soon, there are multiple drawbacks to using your credit card to withdraw money.
We've compiled a list of factors to consider before making a cash withdrawal with your credit card:
- Interest rates: cash advances have higher interest rates than other credit card transactions, which begin the day the transaction is added to your account. Interest rates for cash advances may vary between credit card providers.
- Additional fees: you'll have to pay a cash transaction fee and extra interest if you withdraw cash from your credit card. So, you must check with your provider about the rates and fees before withdrawing money. Additionally, if you want to withdraw cash abroad, you'll be charged a foreign exchange fee on top of the cash advance fee.
- Cash advance limit: you risk extra charges if you exceed your credit limit, and your cash advance may be rejected; so, before withdrawing money, contact your provider and determine limits.
- Credit report: by withdrawing cash, you'll increase your credit utilisation, which can negatively impact your credit rating. If you borrow above your credit limit, you may have a negative mark put on your credit report.
- Protection: there is no protection for cash advances under the consumer credit act, so if your cash advance money is lost or stolen, it likely won't be recovered by your credit card provider.
- Exchange rates: if you're planning to withdraw cash abroad, you'll need to look into exchanges for foreign currency. You may not get the most for your money if you're taking cash out; you may be better off paying by card or applying for a travel-specific credit card.
A cash withdrawal is one of the many cash transactions you need to know about.
Explaining Other Cash Transactions
As you know, withdrawing cash from your credit card is a cash transaction.
However, you should know that other transactions also fall under this category.
The following transactions and purchases count as cash transactions:
- Online trading: buying investments or making share deals with your credit card balance is a cash transaction.
- Gambling transactions: using your credit card at casinos and buying online lottery tickets and other betting methods count too.
- Paying government or court fines: using your credit card balance to pay fines, penalties, fees, and costs counts as cash transactions.
- Topping up utility cards: in an emergency, you may need to top up your electric key or pop money on your payment card or other account dashboard services; these are cash transactions.
- Buying currency: this includes coins, banknotes, foreign currency, buying and trading cryptocurrency and any other digital currency.
- Cash withdrawals: taking cash out with an over-the-counter service counts as a cash transaction.
Please check all of the terms and conditions of your credit card application for a more extensive list of cash transactions, as they may vary between providers.
Alternative Ways to Obtain Cash
Using your credit card for cash withdrawals is one of many options to obtain cash.
Other ways (with lower interest rates) may help you better:
- Money transfer credit card: a money transfer credit card allows you to make money transfers from your credit card to a debit card; it helps pay back overdrafts and other debts with high APR rates.
- Balance transfers: if you need money to pay debts, consider a balance transfer credit card. It allows you to make balance transfers from one credit card to another, and this is a great way to pay back the debt on a card with a much lower interest rate.
- Personal loan: consider applying for a personal loan if you're looking to borrow money for a short period. You may find a loan with lower interest than what you would pay for cash advances.
- Pay with your available credit: avoid withdrawing cash by paying for things with your credit card balance. By making payments with your card, you'll only incur your usual fees instead of possibly paying unnecessary fees.
Final Thoughts on Credit Card Cash Withdrawals
Although you should avoid cash advances, keep your credit card on your person in case of an emergency. While plenty of other options are available, a cash advance could be quicker than taking out a personal loan or applying for a different credit card if you're stuck for time.
If you decide to use a cash advance, check your credit card statement at the end of the month to ensure you're paying the correct cash advance fees and not more than you should be.
Additionally, you can only withdraw cash from your credit card from a cash machine or over-the-counter service that displays the Mastercard® or Visa symbol. Remember to use your cash advance safely and look out for fees and interest charges before withdrawing money.
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