| Overview: When you withdraw cash using your credit card at an ATM or bank counter, you’re entering into a high-cost borrowing arrangement that begins accruing interest immediately. Find out the alternatives to credit cash advances and manage your finances easily. |
What is a Credit Card Cash Advance?
A credit card cash advance is essentially borrowing cash against your credit card’s limit. It’s one of the most expensive ways to access funds. According to RBI data, Indians withdrew over ₹9,500 crore through credit card cash advances in 2022-23, with many unaware of the steep costs involved.
Unlike regular credit card purchases that offer an interest-free period, cash advances start charging interest from the moment you receive the money. This fundamental difference makes cash advances significantly more expensive than standard credit card transactions.
| Pro Tip: Always check your credit card’s terms and conditions, specifically for cash advance details. These terms are often buried in the fine print but have a major impact on the total cost. |
Breaking Down Credit Card Cash Advance Fees
Credit card cash advance fees are structured in multiple layers, creating a cost that’s higher than most people realise. These charges include:
1. Upfront Transaction Fee
Most banks charge an immediate fee when you withdraw cash:
- 5% to 3.5% of the withdrawn amount.
- Subject to a minimum charge (usually ₹300-500).
- Charged regardless of when you repay the amount.
2. High Interest Rates
Cash advance interest rates are substantially higher than regular purchase rates:
| Bank | Regular Purchase Rate (Monthly) | Cash Advance Interest Rate (Monthly) |
| SBI | 1.99% – 3.35% | 3.35% – 3.50% |
| HDFC | 1.99% – 3.49% | 3.49% – 3.99% |
| ICICI | 2.00% – 3.50% | 3.50% – 3.99% |
| Axis | 1.99% – 3.25% | 3.25% – 3.80% |
3. No Interest-Free Period
Unlike regular purchases that offer a 20–50 day interest-free period with credit cards, cash advances accrue interest from day one. The interest compounds daily until full repayment.
4. ATM Fees
Additional charges may apply:
- ₹20-25 per ATM transaction at other bank ATMs.
- International ATM withdrawals incur foreign currency conversion fees (2-3.5%).
Let’s calculate the real cost of a cash advance with a simple example:
Scenario: Rajesh withdraws ₹25,000 as a cash advance and repays it after 30 days.
Cash advance fee: 2.5% of ₹25,000 = ₹625
Interest charges: 3.5% per month on ₹25,000 = ₹875
ATM fee: ₹20
Total cost: ₹1,520
This means Rajesh paid over 6% of the borrowed amount in just one month!
| Did You Know: Most banks allow only 20% to 40% of your total credit limit for cash advances—so even if your credit limit is ₹1,00,000, you may withdraw only ₹20,000–₹40,000 in cash. |
When People Typically Use Cash Advances
High fees and interest rates make it hard to repay the full amount quickly, leading to revolving debt that grows each month. Despite this, people still rely on them in situations such as.
- Emergency Expenses: When faced with urgent medical bills or car repairs, cash advances seem like a quick solution. However, the high costs can deepen financial troubles.
- Cash-Only Situations: Some vendors only accept cash payments, pushing cardholders toward cash advances when they lack funds in their bank accounts.
- Temporary Cash Flow Problems: When facing short-term liquidity issues before payday, cash advances might seem tempting.
Airtel Finance, however, offers smarter credit options with transparent terms and more affordable repayment solutions—helping users avoid the hidden costs of traditional cash advances.
Smart Alternatives to Credit Card Cash Advances
Consider these more affordable alternatives to credit card cash advances:
1. Personal Loans
Personal loans typically offer much lower interest rates than cash advances. With rates starting from 10.5% annually compared to 36-48% for cash advances, they’re significantly more affordable for larger amounts.
2. Overdraft Protection
An overdraft facility linked to your savings account can provide emergency funds at much lower rates than cash advances.
3. Emergency Fund Withdrawals
This is why financial experts recommend maintaining an emergency fund of 3-6 months’ expenses. Using your own savings has zero interest costs.
4. UPI and Digital Payment Options
For many cash-only situations in India, UPI has become widely accepted. With options to link your credit card to UPI platforms, you can make payments without cash advances.
5. Check Your Credit Score
Before applying for any credit product, check your credit score to understand what options are available to you at the best rates.
How to Minimise Costs If You Must Use a Cash Advance
If you absolutely must use a cash advance, follow these steps to minimise the damage:
- Withdraw only the exact amount needed.
- Repay the full amount as quickly as possible, ideally within days.
- Use the credit card with the lowest cash advance interest rates.
- Create a dedicated repayment plan before taking the advance.
| Mistakes to Avoid: Taking multiple small cash advances instead of one—each transaction triggers a separate fee and fresh interest cycle, quietly stacking up your debt far faster than a single larger withdrawal would. |
The Impact on Your Credit Score and Financial Health
Cash advances can affect your financial health beyond just the immediate fees:
- High credit utilisation from cash advances can lower your credit score.
- Regular use of cash advances may signal financial distress to lenders.
- Unpaid cash advances can lead to default and serious credit damage.
RBI guidelines require banks to list cash advance terms clearly, but it remains your responsibility to understand these costs before using this feature.
Wrapping up
Credit card cash advance fees and their accompanying high interest rates make them one of the most expensive ways to borrow money. Instead of turning to cash advances, consider more affordable alternatives like personal loans, emergency funds, or digital payment options. If you must use a cash advance, borrow the minimum amount needed and repay it as quickly as possible.
For better financial options, consider using the Airtel Thanks App to explore better borrowing options.
FAQs
1. How are credit card cash advance fees calculated in India?
Cash advance fees typically range from 2.5% to 3.5% of the withdrawn amount with a minimum charge of ₹300-500, plus interest rates of 3-4% monthly that start accruing immediately.
2. Can I avoid interest on credit card cash advances?
No, unlike regular purchases, cash advances have no interest-free period. Interest begins accumulating from the day of withdrawal, even if you pay the full amount on your next statement.
3. Will a credit card cash advance affect my credit score?
Yes, high cash advance utilisation can increase your credit utilisation ratio and signal financial distress to credit bureaus, potentially lowering your credit score.
4. What’s the difference between cash advance interest rates and regular purchase rates?
Cash advance interest rates are typically 1-1.5% higher per month than regular purchase rates and begin accruing immediately without any grace period.
5. Are there alternatives to credit card cash advances with lower fees?
Yes, personal loans, overdraft facilities, emergency funds, and UPI-linked payment options typically offer significantly lower costs than credit card cash advances.
