Credit cards come with several features that can get very complicated to understand. Without proper knowledge of these aspects, maintaining a credit card becomes very challenging. One such facet is the cash limit in credit cards. It is often confused — and used interchangeably with the credit limit in credit cards.
However, these two terms are different from each other. The credit limit in a credit card is the ceiling or the upper limit on the amount that can be spent using the card. The credit card issuer fixes the credit card limit.
The main factors determining the credit card limit include your income, payment capabilities, and credit score. Exceeding the credit limit attracts over-limit charges. Thus, you will be penalised for spending more than what has been assigned to you. Your card may also get blocked if you start surpassing the limit frequently.
It is highly recommended that you keep your spending to about 30% of the credit limit. A Cash limit in a credit card, on the other hand, is related to cash withdrawals. Credit cards allow you to withdraw cash from ATMs up to a certain limit.
Availing such a facility attracts charges in the form of cash advance fee and finance charges. Thus, the credit card limit incorporates the cash limit. But the implications of these two terms are quite different.
How can you manage the cash limit in a credit card?
Cash withdrawals utilizing credit cards can get quite exacting and complicated. It is not as straightforward as debit card withdrawals, wherein you extract cash from your own funds. Withdrawing cash using a credit card implies that you’re borrowing from the issuer.
In other words, you get indebted to the bank or the NBFC for availing of this cash advance facility. Moreover, your hands get tied after withdrawing a certain amount, i.e., the cash limit comes into the picture. Keeping a tab on the cash limit and the cash advance fee is vital. Here are some ways to help you with the same.
- Become well aware of the multifarious charges: You can oversee cash limits only when you become familiar with the charges accompanying cash withdrawals. First and foremost, you will have to pay the transaction or the cash advance fee. Secondly, you will also have to extend interest or finance charges. This interest rate is typically more than what you incur on regular credit card transactions. Moreover, there is no grace period in the case of cash advance. Interest thus begins getting accrued immediately. However, there are certain exceptions. For instance, the Bajaj Finserv RBL Bank SuperCard extends a grace period of 50 days. Thus, you can savour a significant number of interest-free days.
- Repay the cash advance amount as soon as possible: The absence of a grace period implies that the interest accumulates daily. Hence, it is advisable to settle the dues as and when it becomes feasible. Otherwise, the interest amassed would take a heavy toll on your wallet.
- Allocate your payments wisely: One way to successfully manage the cash limit in credit cards is to have a proper repayment strategy. The credit card statement mentions the total amount due, minimum amount due, and cash advance among others. If you choose to pay off just the minimum amount due owing to financial exigencies, it does not get directed towards cash advance. By default, banks select the category that comes with a lower interest rate. Thus, you can get trapped in a never-ceasing loop of debt. If the cash advance charges roll over to the next month, the interest further surges. Therefore, pay off both the minimum amount due and the amount of the cash advance to avoid an exorbitant penalty. You will still be charged interest on the outstanding amount, but the rate will be lower.
- Avail of this facility in crises only: To control the cash limit, you should avail of the cash advance facility in times of urgent requirements. Utilise the credit card for regular transactions. However, refrain from withdrawing cash through the credit card as much as possible.
- A thorough analysis of terms and conditions: Successful management of cash limits warrants a thorough analysis of the terms and conditions. These specifications vary with both — lenders and the type of credit card. You should read the fine print carefully.