Rahul, 24, landed a new job in Delhi with a multinational company. He had just moved from Mumbai to the new city, but soon faced a cash shortage brought on by various reasons.

The money he had received from his parents was exhausted, the payday was still very far away, and to make matters worse, his landlord began to harass him to get more money for the house than he already had. paid the rent and the deposit.

All of this meant that he needed some quick cash which he found really difficult to raise. So he decided to use his new credit card to pay for everything. Just go to the ATM, insert your card, enter the PIN code and the amount and bingo! You get the money you want so badly.

It wasn’t until a few weeks later that he realized that easy liquidity had nasty side effects. When Rahul received his monthly credit card bill, he was shocked to see the fees – interest and handling fees – that the card issuer had imposed on him.

Like most normal human beings, Rahul didn’t bother reading the fine print. They call it terms and conditions in commercial jargon.

So while using a card to get the money you want is quite simple and convenient, the hard part comes later when you figure out the interest and other fees you pay on these loans.

A credit card loan is instantaneous, requires no approval or documentation, and can be withdrawn from any ATM machine inside and outside India. However, this option may not be available on all credit cards and the cash withdrawal limits and associated finance charges may also vary from card to card.

Here are some of the charges that such loans entail:

Cash advance fees: These fees are charged whenever a credit card is used to withdraw money and typically range from 2.5% to 3% of the amount withdrawn, subject to a minimum amount of Rs 300 to Rs 500.

Financial expenses: You will also have to pay a finance charge on the cash advance fee at a rate similar to that charged on the amount withdrawn. It will be debited from the date of withdrawal until full refund of the amount.

Interest: This is charged at the monthly percentage rate and will be debited from the date of the transaction until full refund.

Banks typically charge an interest rate of 2.5% to 3.5% per month on all cash advances. The rate varies depending on the bank and the card.

Withdrawing cash from ATMs using a credit card is similar to withdrawing cash using a debit card. These withdrawals can be made at ATMs of any bank, regardless of the bank issuing the credit card. The difference is that there is no charge for debit card withdrawals since you don’t take out a loan. In addition, cash advance fees may vary from bank to bank.

So if you withdraw Rs 10,000 from your credit card in a month, considering the 3% interest rate and the Rs 500 cash advance fee, you will end up paying Rs 10,800. C It’s 8% per month in total, or an incredible 96% annualized. Of course, if you stagger your repayment, the overall cost of your loan goes down. In a five month repayment plan on the same loan amount, for example, the total interest and fees payable would come to Rs 1,520. That’s 36.48%. Your call on if it’s cheap or steep.

Impact of credit card cash advance on credit score:

Your credit score is affected if you don’t even pay the minimum amount owed, so you need to make timely payments.

This loan function has both advantages and disadvantages. Here are the pros and cons in detail.

Advantages

Instant money: With ATMs being accessible 24/7, you can access cash anytime, anywhere in the country.

No Approval, No Documentation: Unlike other loans, the cash advance feature does not require any further approval from the bank, nor does it require you to submit any documents to benefit from the facility.

Disadvantages

Fees and charges: Each time the facility is used, a cash advance fee will be levied resulting in a finance charge which will be charged from the date of the transaction until full payment of the refund.

Interest rate: Although the interest rate on cash advances is similar to interest charged on card transactions, interest on cash advances will be charged from the date of the transaction until payment in full.

Reward Points: Regardless of the amount of the transaction, you do not get any reward points for cash withdrawals by credit card.

Interest-free period: There is no interest-free period on cash advances and interest will continue to accumulate until you pay off your outstanding payments in full.

TABLE: What the top five banks charge you on credit card loans

Credit card Cash advance fee Interest rate

Canceled monthly

HDFC Bank 2.5% (minimum Rs 500) 1.99-3.5% 23.88-42%

ICICI Bank 2.5% (minimum Rs 300) 2.49-3.5% 29.88-42%

Axis Bank 2.5% (minimum Rs 250) 2.95-3.5% 35.40-42%

SBI 2.5% (minimum Rs 300) Up to 3.35% Up to 40.2%

Citibank 2.5% (minimum Rs 500) 3.1-3.5% 37.20-42%