The credit card which now forms place in most of the wallets should ideally be used as an interest- free credit tool (for some 45 days) and not as a means to withdraw cash on it as there are several charges on such usage on the credit card that makes the overall transaction for the user very expensive. And typically to increase their customer base or expand the usage of credit cards, banks in India during the current festive season are luring customers with probably half information via SMSes. The SMS say that the credit card issuing entity will reverse the fee charged in respect of cash withdrawal on credit card.
Pertinently, banks pre-specify different limits in case of spending as well as cash withdrawal on credit cards. And if the transaction is exercised then the repayment is to be done by the due date either in full or the minimum amount due has to be paid back to the financial entity. But it is suggested that you pay the full outstanding amount on the credit card as else interest continues to be charged for the balance amount. Typically credit card debt is the most expensive with the interest rate or charges as high as 45% per annum.
On the cash withdrawal i.e. subject to a minimum amount, banks charge a one-timewithdrawal fee of 3% over and above the interest charges of 40-45% for the entire credit period i.e. from the date of cash withdrawal until the debt is settled. In respect of the minimum amount, we mean that if your bank says that the cash withdrawal fee is Rs. 500 or 3% whichever is higher, then in a case even when you withdraw just Rs. 5000, you will be charged Rs. 500.
So, for the cash withdrawal facility, there comes no free interest period facility and the obligation has to be settled then and there as then there are penalty implications as charges. Also, on the cash withdrawal, there is levied an 18% GST. Hence, while banks may be offering to reverse the minimum charges on cash withdrawal Rs. 500 using the credit card, one cannot get away with the interest charges and GST implications
Therefore, while the festive season may lure you to go an extra mile, you can look for other alternatives for your financial needs, as withdrawing cash on credit card also is marked negative on your credit score.