The credit card market is anticipated to grow at a rate of over 25% in India between 2020 and 2025. As per experts, the ever-growing popularity of cashless transactions and the convenience of paying through a credit card are among the several factors that would further increase credit card demand in India.
Furthermore, with increased digital convenience, cardholders look to maximize the utility of their credit card through various means. For instance, many cardholders now intend to transfer money from credit card to bank account. However, like every other financial transaction, there are both positive and negative aspects associated with transferring money through credit card.
Advantage of fund transfer through credit card
These pointers highlight the most prominent benefits of funds transfer from credit cards to bank accounts –
- Improves liquidity by providing more cash in hand.
- Helps to meet emergency funding requirements involving cash.
- It helps to transfer funds anywhere across the world.
- Funds can be re-transferred to a savings account of any financial institution.
- One can transfer funds through credit card online easily either via mobile wallets or wire transfer.
Also, with some NBFCs, cardholders can initiate this facility by getting in touch with their credit card customer care representative. However, credit cards are primarily payment instruments, and funds transfer facilities are provided at specific charges. Thus, before going ahead with the transfer, one should check the associated cons in detail.
Disadvantages of fund transfer from credit card
The following serves as an overview of the negative aspects of such a transfer.
1. High-interest rate
There is a high possibility of being subjected to an interest rate which is higher than the standard interest rate imposed on credit card transactions. It is in the best interest of cardholders to find out about such charges in advance to make a smart decision about such fund transfer.
2. Processing fee
There are several fees that cardholders are required to pay to enjoy this particular credit card feature. For instance, some mobile wallet applications levy a fee of up to 3% on every transfer. Also, international fund transfer is often subjected to higher restrictions and processing charges.
3. Processing time
Usually, it takes 1 to 5 business days for the amount to reflect in the cardholder’s savings account. So it may be quite some time before individuals get to know about the accurate status of the fund transfer.
4. Impact on credit score
When cardholders transfer money from credit card to bank account in bulk, it can lay a negative impact on their credit score. Typically, 30% is deemed to be a healthy credit utilization ratio. However, transferring a large fund through the card jeopardizes the credit utilization ratio, which can result in a negative impact on one’s credit score. That being said, cardholders should learn how they can use their credit card to improve credit score and keep a check on activities that have a negative impact on the score.
5. Zero interest-free days
Financial institutions do not provide interest-free periods to credit card users in case of availing cash advances. In fact, they are more likely to charge a higher interest rate on processing cash transfers.
However, certain cards like Bajaj Finserv RBL Bank Super Card offer a predefined interest-free period to cardholders on cash advances availed through ATMs.
They also provide pre-approved offers to help make the borrowing experience smooth and hassle-free. Such offers are provided on financial products like business loans and personal loans, among others. Check your pre-approved offers in a few steps by sharing your name and contact number.
Regardless, credit card users need to know about the credit card in detail to make the most of such features and learn about associated charges to manage funds accordingly.
Notably, these disadvantages outweigh the pros of such fund transfer. Users can thus look forward to utilizing other attractive features to maximize the usage of their credit cards.
As the process to transfer money from their credit card to bank account comes with both pros and cons, individuals must weigh them carefully to make a wise decision. They can also seek other alternatives like ATM withdrawal, if possible. Considering factors like the terms of credit card providers and one’s repayment capability can prove to be useful in making a more informed decision.