Industry experts believe that the biggest blunder one can do with credit cards is swipe it at an ATM machine for cash. Although you may be well within your cash limit, the interest rates levied over such transactions are enormous, rising as high as 40% on an annual basis. It is because of this proposition that credit card companies seek to maximize profit with these types of transactions. Credit card users are lured in to use their credit cards at an ATM machine with various schemes and offers like redemption point systems and cash back offers. However, it is these users who stand to lose with the arrival of their monthly credit card statement, when they get their eyes on the sky-high rates of interest that are levied on such transactions.
In the normal course, the interest rate charged by credit companies on a monthly basis varies from 2.5% to 3%. If you consider this rate of interest on an annual basis, then the interest rates levied on your credit card transactions will be around 40% to 45%. Also, since credit card companies offer the same rates of interest for all cash withdrawals from your credit card, and for rolling over your credit card balance to the next period, some leverage is also given to the user when you do not maintain any outstanding dues on your credit card and make all payments on time, by a period of approximately a month or more where you would be free from any interest on all your transactions. However, it is important to remember that this rule is not applicable for cash withdrawals from your credit card. As you enjoy interest-free transactions with your credit card on other arenas, your credit card company is free to charge the usual peaking amounts of interest for all cash withdrawals with your credit card.
Credit card companies are also free to levy an additional withdrawal fee for such a transaction from your credit card. This charge can range from 3.5% to 4%, of the amount withdrawn in the transaction and will be coupled with the already high rates of interest, making it an additional liability for the credit card user. Thus, it is best to refrain from using credit cards for cash withdrawals, or limit it to emergency or contingency needs. If you have a demand for money in the near future, opt for personal loans, as they are the safest and best bet one can make at times of financial need. Personal loans are viable sources of finance at comparatively lower rates of interest. Although it may take a few days to process the loan, it is definitely worth the wait.
Thus, refrain as much as you can from using credit cards for cash withdrawals, limiting it to emergency purposes. While credit card companies will attract you to indulge in such transactions with various marketing and advertising gimmicks, remember that the credit card company stands to earn high and you stand to lose big with such transactions. In case you have a need for money in the near future, personal loans are a better option. Although the process of acquiring one can be quite time-consuming, you will enjoy lower rates of interest as compared to the rates charged on credit card companies. Thus, in order to avoid such setbacks, make sure that our finances are properly planned well in advance. If you have an expected need for money, say for a business start-up venture, then plan ahead to avoid any additional debt in the future so that you can get hold of your own personal savings to finance you propositions without any external burden.