Credit cards come with a credit limit which represents the maximum amount the cardholder can make use of. Apart from making purchases or bill payments, the cardholder can withdraw cash from the credit card. The cash withdrawal facility on the credit card is also known as a Cash Advance.
Check: Top 10 Credit Cards in UAE
What is a Cash Advance?
Like any other bank cards, credit cards also have the option of withdrawing cash from the ATMs. As a credit card is primarily used for transactional purposes, the cash withdrawal facility is an additional feature. The Cash Withdrawal/ Cash Advance feature will be available on most of the credit cards provided.
Cash Withdrawal Limit
As said earlier, every credit card comes with the credit limit, the cardholder can withdraw cash according to the credit limit and also the withdrawal limit which varies according to the provider/ bank. The maximum cash withdrawal limit will be up to 100% at some banks in UAE which means the cardholder gets to withdraw 100% of the available credit limit in cash. The cardholder has to repay the withdrawn amount before the due date according to the credit card billing statement.
The cash advance on a credit card is associated with certain charges like cash advance fees and cash advance rates which they need to clear along with the withdrawn amount.
Credit Card Cash Advance Charges
Usually, a credit card transaction bill will be generated once a month. After the bill is generated there is a grace period maximum of 21 days will be provided which is considered the due date to pay the credit card outstanding bill in full or the minimum amount. So when the cardholder misses the due date, the interest rate will be started from then.
When the cardholder withdraws cash using the card, the interest rate assigned to the cash advance will be applied from the Day 1 of the withdrawal without the grace period. Along with the interest rate, at some banks, there can be a cash advance processing fees also levied.
Also, Check: Credit Card charges in UAE
In the UAE, most of the banks charge around 3%(per month) as cash advance interest rate and the cash advance fee is also around 3%. The interest rate will be levied monthly, whereas the cash advance processing fee will be a one-time fee.
For example, if the cash withdrawal using the card is AED 15,000 then 3% of the withdrawn amount is AED 450 is charged as the interest rate per month and another AED 450 as well as cash withdrawal fee. Summing up, AED 900 will be charged in the first month on the cash withdrawal of AED 15,000. From the second month onwards, an interest amount of AED 450 is levied till the debt is cleared.
Things to be aware of –
Though the cash withdrawal facility on a credit card is an option to get instant cash without any documentation or approval, there are some disadvantages like
- High cash withdrawal fees
- High-interest rates that get calculated right away
- Can have a negative impact on the credit score
Hence it is always recommended not to withdraw cash using a credit card, rather considering other finance options like personal loans can be better.