Are you one of those people who misuse your cards? Data from the Reserve Bank of India suggests that 43 lakh credit cards were used in automated teller machines (ATMs) during the 2014-15 fiscal year. These cards were used for transactions worth Rs 2347 crore.

The number of credit cards used at ATMs and the amount of transactions have doubled in just four years. In 2011-12, 21.9 lakh cards were used for transactions worth Rs 1260 crore. While there are many other transactions that can be done at an ATM, the amount involved in the transactions tells us that each credit card was used to withdraw money of almost Rs 5,500 on average.

On the other hand, even though the number of debit cards is 12 times that of credit cards, transactions made with debit cards at the point of sale are lower than those with credit cards.

“At ATMs, 95% of cards are used to withdraw money,” says Vijay Jasuja, Managing Director and CEO of SBI Cards. “Usually, debit cards and ATM cards are used in ATMs, but people use credit cards to withdraw money when they need money but don’t have it on their own. Bank account. Charges and applicable interest rates are communicated to cardholders as part of the terms and conditions, but a very small percentage of credit card transactions are used for emergency cash withdrawals, ”he adds. he.

But what’s wrong with withdrawing money with a credit card?

When using a credit card for point-of-sale transactions, such as hotels or stores, the amount must be paid at the end of the credit cycle, which can last from 28 to 55 days. You will not have to bear interest charges during this period on the transaction amount. Only if you don’t erase your credit card at the end of the credit cycle, will you have to bear interest and late fees.

The rules are a little different when it comes to cash withdrawals from ATMs using credit cards. The countdown begins the day you withdraw the money. You have to pay 2.5-3.5% interest per month on the amount withdrawn from day one. In addition, transaction fees are charged each time you use your card at an ATM.

ICICI Bank credit card “Most important terms and conditions”, “A transaction fee of 2.5% (minimum Rs 250 for ICICI Bank ATMs, Rs 350 for other ATMs) would be deducted from the amount withdrawn and would be billed to the cardholder. in the following statement. All cash advances also have a finance charge of 2.95% per month (41.75% APR per annum) from the date of withdrawal until the date of full payment. “

Let us understand how you would end up paying high fees on cash withdrawals using credit cards through an example. Take Sushma, a credit card holder, for example, who withdraws Rs 5,000 in cash from an ATM using her credit card. Sushma is expected to pay an immediate fee of Rs 250-350, depending on the card company and the ATM where she used the card. These transaction fees for using the credit card at the ATM would also incur a service charge. Besides the transaction fee of Rs 250-350, she will have to bear the interest on the cash withdrawal from the day she withdrew the money, until she pays it back in full. The interest rate applicable to these cash advances is higher than the regular interest charged on a credit card.

Sushma was charged a rate of 2.95% per month on the withdrawal of cash of Rs 5,000 by the issuer of his card. She repaid the amount 28 days after the withdrawal and as a result her total interest charge was Rs 135.78. So, in total, she paid Rs 385.78 (250 + 135.78) as fees. Add to that a service tax of Rs 54 and the total amount climbs to Rs 439.28.

Some card issuers charge a fixed transaction fee of 2.5-3% of the amount withdrawn, subject to a minimum of Rs 250-350. Thus, the charges could differ depending on the money withdrawn by Sushma. You might end up paying Rs 300 as a fee even though you have withdrawn Rs 100 using a credit card.

Instead, if Sushma had used her credit card directly to pay the merchant, she could have paid the amount at the end of the credit cycle, which is between 25 and 52 days depending on the card issued, without paying. any interest. Unless she renews the credit card dues, she doesn’t need to pay interest.

There are also restrictions on the amount that can be withdrawn in cash, which are tied to your credit card limit. For example, HDFC Bank has capped withdrawals at 40% of the credit limit on its premium cards. If the limit is exceeded, an additional charge called an overage charge is applicable, which ranges from 2.5% to 3% of the excess amount.

If you are in a tight spot and need urgent cash to meet your needs, then a better way would be a personal loan. Although some documents are required, the interest rate differential would help you save money in this situation.

Interest rates for personal loans range from 12% to 30%, depending on your credit score and profile, but cash withdrawals by credit card are charged at an interest rate of 35-50%. Thus, credit card advances are the most expensive loans. In addition, banks are willing to waive processing fees on a personal loan for people with a good profile. This is not the case with credit card cash advance fees.

“Instead of withdrawing money, credit card holders should use the card to make transactions and if they cannot pay the money at the end of the cycle, they should convert it to EMI, where l The applicable interest will be 14-15%, instead of the high cash withdrawal transaction fee and applicable interest, ”recommends Jasuja.

Another option is to keep a prepaid card handy. If the debit card does not work, you can use this prepaid card to withdraw money at point of sale or merchant store, kirana kiosks, etc. On August 27, the RBI also increased the point-of-sale cash withdrawal limit (for open-system prepaid cards and cards issued by banks in India) to Rs 2,000 per day from Rs 1,000 previously in shopping centers. from level III to VI.