Credit card cash withdrawal: Why withdrawing ₹10,000 can cost you more than expected in fees, interest and other charges
Credit card cash withdrawal: Why withdrawing ₹10,000 can cost you more than expected in fees, interest and other charges
Withdrawing ₹10,000 using a credit card can cost more than expected. Understand cash advance fees, interest rates, GST, repayment calculations and why credit card cash withdrawals can become an expensive borrowing option.
Credit card cash withdrawals can attract upfront fees, immediate interest and GST, making even a ₹10,000 cash advance significantly more expensive than regular credit card purchases. (AI-generated image for representational purposes only)
Withdrawing cash on a credit card can seem like a convenient fix in an emergency, such as a costly surgery or an urgent cash need. But cash advances are among the most expensive forms of debt.
Unlike regular purchases, a cash withdrawal attracts a withdrawal fee, and interest starts from the day the money is withdrawn. There is no interest-free period, which makes the transaction costly even if you repay quickly.
For someone withdrawing ₹10,000, the amount to be repaid can be significantly higher, especially if the dues are not cleared immediately. Here is how the charges add up.
How much does a ₹10,000 credit card cash withdrawal cost?
When a credit card user uses this facility, they generally incur a ‘cash advance fee’ calculated as a percentage of the amount withdrawn or a minimum fixed fee, whichever is higher. Interest on the cash withdrawn is charged separately until the entire cash advance is repaid and cleared by the borrower.
Furthermore, GST is also applicable to the relevant fees and interest charges as per the terms and conditions of the credit card agreement that the holder enters into when availing the card.
Consider an illustrative example in which the cash advance fee is assumed to be 2.5%, and the monthly interest rate is 3% (36% annually). The cash advance fee generally ranges from 2.5% to 3.5% of the amount withdrawn. Based on the same assumption, the complete calculations for the same are discussed below:
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Illustrative calculations
Now, this illustration clearly shows that withdrawing ₹10,000 can end up costing an individual about ₹644 extra if the repayment period is 30 days. If the repayment period is extended further, repayment costs also increase rapidly.
Why should cardholders avoid cash advances?
This calls for proper understanding of credit card cash withdrawals and utilising them only when all other options for borrowing funds are exhausted. The biggest disadvantage of such transactions is the complete absence of an interest-free period.
The applicable interest charges begin accruing from the withdrawal date rather than the billing due date. Moreover, cash withdrawals on credit cards do not earn cardholders any reward points, cashback offers, or schemes, and they have a separate, often lower, withdrawal limit.
Hence, credit card holders should ensure that they reserve this facility for unforeseen emergencies when all other borrowing options are unavailable. Utilising a debit card linked to a savings account, or exploring similar options that offer cheaper borrowing options, may be the most prudent way to proceed in serious financial emergencies.
In case of doubt or hesitation, it is wise to seek guidance from a certified financial advisor before making any decision. This is because proper financial planning in such cases can help keep an individual's financial stability in check.
In summary, a ₹10,000 cash advance is not necessarily a ₹10,000 borrowing facility. Withdrawal fees, immediate interest expenses, other associated charges, and applicable taxes can collectively increase the total repayment burden. Before proceeding with such a decision, it is wise to check your credit card's scheduled charges and seek professional advice.
Shivam writes on personal finance, equity markets, and mutual funds. He has previously contributed to several leading publications, including Moneycontrol. He can be reached at shivam.shukla@htdigital.in