Sunday, August 26, 2007

Cash Withdrawal on Credit Card is Costly

Credit card can be used in many ways, some of them are to avoided at the maximum level. Knowledge of what should not be done is essential for the purpose of avoiding heavy charges that are likely to be levied on the credit card. One area that need attention is that of cash withdrawal on the card.

Most people fail to understand the cost involved the cost in withdrawal cash on a credit card. When you withdraw money on credit card, then a some charges are levied.
Cash withdrawal on a credit card is expensive and should be
done in an emergency only
Cash on a credit card should be withdrawn only in emergency. That is also the reason why there are two major types of expenses that will be incurred on the transaction. Whenever you withdraw cash from an ATM, there is a transaction fee that wil be levied. This fee is calculated at a certain rate, ususally at 2% to 2.5% of the amount withdrawn. If the rate is 2.5% and the amount withdrawn is Rs 20000/-, then an immediate charge of Rs.500/- will come into play.

One thing that has to be understoold that there will be a minimum charge that will be applicable. This could be something like Rs.250-300 and hence a small withdraw will result in a larger hit as far as the precentage calculation is considered. Even those who know about this fail to realise that there is another expense that is already on the way.

This is the expense related to the finance carge, which is normally payable when the payment is delayed and is also known as the interest charges. Credit cards now have the feature or the condition wherein the charge will be applicable from the date of making the withdrawal and applicable thill the time of full payment.

Under a normal expenditure on a credit card there is a credit period available during which there is no interest charged if the payment is made by the stipulated time. But that is not possible for a cash withdrawal.

This means that the bill starts ticking the moment the cash is withdrawn and more important is the time period till which the interest will continue. One has to read the wordings for this carefully because if it says interest till the time of full payment, then even if there is a part payment then the charges will continue untill the entire amount withdrawn as cash will be paid back to the credit card company.

(with help from an article by Arnav Pandya in HT dated Aug 21, 07)


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