Talk

Advanced search

Why would a credit card allow you to spend on it but not withdraw cash?

(44 Posts)
CatAndHisKit Tue 29-Sep-20 01:48:29

I don't get it - they are getting higher interest rate on cash withdrawl, but it seems to be the case if you keep paying a minimum payment only (monthly).
There is a credit limit (not that high) in place and a limit on what can you withdraw. I only have 300 available to spend on it currently so withdrawing just 300 seems like a petty amount compared to all interest/fees they get from me. Why not then disallow any use of the card?

OP’s posts: |
sashh Tue 29-Sep-20 10:07:17

What do you need to buy that you can only use cash for?

The advanced payment for my motability car was £700.00, if paid by credit card the garage charged 10%.

I did have the money to pay, but if I didn't it would have been better off taking cash out on a credit card.

There has been a time in my past when it was cheaper to take a pay day loan at 1000% than pay bank charges.

Sometimes there are no good options so you calculate the least bad.

OP

As interest is paid from the day of withdrawal taking £300 may put you over the limit. Agree with trying alower amount.

eaglejulesk Tue 29-Sep-20 09:45:15

@SoUtterlyGroundDown - it's interesting that banking systems differ around the world. I'm not doubting what you say, just found it really strange because that certainly isn't the way it works here.

Or do you think that it's OK that only £1.09 of a near £28 minimum payment goes towards reducing the balance and people should be just left to get on with it, staying in debt for years and wasting thousands on interest?

Of course I don't, but I also think that people should be allowed to manage their money as they see fit. This falls into the category of "nanny state" to me.

BarbaraofSeville Tue 29-Sep-20 09:23:50

That's a good point Dad, hadn't thought of that. You could effectively just put off paying any of your credit card debt by doing just that, or doing what Browneyes friend is planning to do, both of which is not in the bank's interests.

Of course, more than half of all credit card accounts are paid off in full every month, paying no interest and some even earn cashback - I make about £100 a year from mine.

The banks will make something from transaction charges, but these have been reduced by law over the last few years, and there are costs to running the system that need to be covered, but it's not right that the people that pay for it are those who are probably least able to afford it.

SisyphusDad Tue 29-Sep-20 09:17:48

And aren't the companies concerned about you taking cash out on one credit card to pay the bill on another?

BarbaraofSeville Tue 29-Sep-20 09:16:52

There seems to be a lot of talk on this thread about banks' reaction to people who only pay minimum payments, take out cash etc. - that doesn't happen here (not UK)

There are now rules in the UK (and presumably the rest of the EU?) about helping people get out of 'persistent debt'. You get a minimum payment marker on your credit file, as an indication that you are only paying the minimum, so may have debt problems, and a warning appears on all your credit card statements about how this means you will be in debt for a very long time, and if you need help, to call them.

This is because, if you only pay the minimum, just about all your money goes on paying interest and the amount being used to reduce the debt can be literally pennies - from my latest credit card statement, the minimum payment is £27.84 and if I only pay this, next month I will be charged interest of £26.75 and my interest rate is 'only' 15% - many credit cards carry an interest rate of 20-30%

Obviously, this makes a lot of money for the banks, but they are doing so by exploiting people who are vulnerable either due to being short of money, or being financially illiterate and they've been told to stop it.

New rules, from MSE, are that they should write to you periodically, encouraging you to pay the balance of more quickly than you are if more than half of what you pay goes on interest, over a prolonged period of 18-36 months, with the overall aim of repaying the whole balance within another 3-4 years maximum.

www.moneysavingexpert.com/credit-cards/persistent-debt-help/

Or do you think that it's OK that only £1.09 of a near £28 minimum payment goes towards reducing the balance and people should be just left to get on with it, staying in debt for years and wasting thousands on interest?

SoUtterlyGroundDown Tue 29-Sep-20 09:16:27

eaglejulesk

*@SoUtterlyGroundDown* - I don't live in the UK so obviously our banking system differs from yours. I've had a credit card for 40 years and have never once been contacted - but I am talking about credit cards issued by banks, not other companies.

It was a bank which provided credit cards that I worked for.
Yes I fully understand it’s different in other countries (I’ve also worked for banks in France, Spain and Italy), I was just responding as it seemed as though you were disbelieving of the poster who mentioned banks contacting you if you only made the minimum payments.

Browneyesbigbum Tue 29-Sep-20 09:10:57

I'm not sure but my friend has recently run up her credit cards to the max and has withdrawn cash on them so some must allow you to do it. She had popped the cash to one side since is going to declare bankruptcy after maxing her cards.

I think it's the sort of thing some people do before saying bankrupt and then walking away (if no assets etc to go after - renting etc) so perhaps some credit cards prevent it?

Cheesecake53 Tue 29-Sep-20 09:09:29

I think it is because a cashless society is more in their interest. They do not worry about people getting into financial difficulties.

eaglejulesk Tue 29-Sep-20 09:08:20

@SoUtterlyGroundDown - I don't live in the UK so obviously our banking system differs from yours. I've had a credit card for 40 years and have never once been contacted - but I am talking about credit cards issued by banks, not other companies.

SoUtterlyGroundDown Tue 29-Sep-20 09:03:57

eaglejulesk

Actually, following on from my previous post, the situation here is the more you use your card, the more they keep raising the limit, and as long as you make that minimum payment they are happy. Why would they not be - they are making a fortune in interest from people who do that.

Because those only making the minimum payment monthly are, in general, those who are more likely to default.

eaglejulesk Tue 29-Sep-20 09:03:05

Actually, following on from my previous post, the situation here is the more you use your card, the more they keep raising the limit, and as long as you make that minimum payment they are happy. Why would they not be - they are making a fortune in interest from people who do that.

SoUtterlyGroundDown Tue 29-Sep-20 09:02:11

@eaglejulesk I used to work for a credit card company in the U.K. and they do contact people who only make the minimum payment.
After a certain period the credit card balance will be classed as ‘persistent debt’.
Pointing out to people that if they only pay the minimum the debt will take them considerably longer to clear is part of the responsible lending guidelines.

BarbaraofSeville Tue 29-Sep-20 09:01:44

Why don't you just draw the cash from your bank account then you wouldn't be paying interest at all

You have to be careful with this these days, because the usual interest rate for bank account overdrafts is now around 40% and the rate charged by credit cards will usually be a lot less, although credit cards often charge a fee for cash withdrawal, which will skew the result by an amount that I CBA to work out.

Therefore, if you need to borrow, it's now better to do it with a credit card rather than an overdraft, but only if you can pay it back quickly so the interest is lower, or even nothing at all.

It will even help if you do as much of your normal spending as possible on your credit card, as long as you can pay off in full every month, as the act of delaying the amount being withdrawn from your bank account by a few weeks helps someone in this position stay out of overdraft, so saving money.

eaglejulesk Tue 29-Sep-20 08:59:59

My OD limit is £1k. My CC limit is £21K. Big different in the amount of debt I could find myself in...

A pp mentioned withdrawing cash you don't have, I was merely pointing out that is what you do when you have an overdraft. The OP mentioned the sum of 300 pounds, not 21K

I regularly get letters of concern from the company pointing out I am only paying the minimum amount and do I need to speak to a debt advisor.

Really - I have never heard of that happening to anyone, even when they have a big balance and only ever pay the minimum amount!!! There seems to be a lot of talk on this thread about banks' reaction to people who only pay minimum payments, take out cash etc. - that doesn't happen here (not UK). As long as the minimum payment is made every month they don't care. Along with people being shocked that others don't pay the full balance - I find it all quite bizarre.

I do realise that it is not financially sound, but it really is very common.

SoUtterlyGroundDown Tue 29-Sep-20 08:58:10

If you’re withdrawing cash on your credit card the chances are it’s because you’re in a difficult situation financially. It’s a ‘red flag’ to the credit card company, as it means you’re more likely to default on payment.

NaughtipussMaximus Tue 29-Sep-20 08:51:56

avamiah

The answer is because you are into your unauthorised overdraft.
I mean overdraft is bad enough but when you go over that ( usually only once ) lol it’s bad . You can never withdraw cash when in Overdraft never mind unauthorised overdraft .
I know this from experience unfortunately .

This isn't true for all banks. I basically lived in my overdraft for years when I first lived on my own, and I absolutely could draw money out. Plus OP is talking about her credit card, not her bank account.

JinglingHellsBells Tue 29-Sep-20 08:51:02

Why don't you just draw the cash from your bank account then you wouldn't be paying interest at all

Doh...wwell I wonder why that might be?

Presumably because she doesn't have any money in her account and is living off credit and loans.

JinglingHellsBells Tue 29-Sep-20 08:49:59

I didn't even know you could withdraw cash on a credit card despite having had one for over 40 years!

OP why do you need cash rather than paying by card?

It does sound as if you are already in financial difficulties if you need to borrow £300 in cash for something instead of either saving for it, or using an interest-free loan for whatever, or using your CC.

Viviennemary Tue 29-Sep-20 08:44:33

Why don't you just draw the cash from your bank account then you wouldn't be paying interest at all.

BrazenlyDefying Tue 29-Sep-20 08:03:14

Because taking out cash is more expensive. You pay interest on it from the start. If you spend on a card in a shop and pay the bill as soon as it arrives, it costs nothing.

People do not routinely withdraw cash on a card unless they have no other option.

BarbaraofSeville Tue 29-Sep-20 08:03:10

If you are paying interest and fees on a credit card, that sounds like you are in financial difficulty or on the verge of being in this position as otherwise these are to be avoided as they're such a waste of money and unnecessary spending on absolutely nothing that benefits you and all it does is makes lots of profit for your bank.

The sooner you do something about this, the easier it will be to get onto a better financial footing, potentially avoiding years of stress and worry.

It might not feel like it, but when your bank starts refusing to lend you money, they're actually doing you a favour, because this could be the start of getting things sorted out for good. Have a look at:

www.moneysavingexpert.com/loans/debt-help-plan/

Igotthemheavyboobs Tue 29-Sep-20 08:00:16

What is the difference between taking it out in cash or spending the same amount in a shop?

I remeber the charges I got once for taking cash out on a credit card. I didn't have my bastarding debit card on me and the cafe took cash only 🙄 that was coffee cost me a small fortune. This was about 10 year ago though.

BrazenlyDefying Tue 29-Sep-20 07:51:58

Agree with the others, it's a sign of financial difficulties and irresponsible spending. If your bank account is so empty that your only option for cash is to draw it out on a credit card, that's not a good sign, is it?

I don't think i've ever drawn money out on a credit card in the UK, maybe overseas.

BarbaraofSeville Tue 29-Sep-20 07:51:05

Banks often have rules that make no sense and don't react to changes in customer behaviour.

I was once criticised for using my overdraft every month, despite having substantial savings with the same bank. I used my overdraft because it was interest free up to a certain amount so didn't cost me anything and I could have paid it off any time I wanted to, but didn't see the point.

I've never had problems withdrawing hundreds of pounds worth of foreign currency in cash but it was always paid back within a few days.

I suppose these days, when just about everywhere accepts credit cards, banks see the need to question why anyone needs large amounts of cash and might think that you've borrowed money from a friend, relative or unofficial source like a loan shark.

Plus, if you're only paying the minimum and are close to your limit, that probably indicates to them that you're in financial difficulty. You can remove the minimum payment marker by simply setting up a standing order to pay £1 over the minimum.

But if you are only paying the minimum or not much more, chances are that almost all the money you pay them is going on interest and only a tiny amount is going towards your debt.

There's now rules in place that stops this situation continuing for years on end - banks are required to send you down the 'persistent debt' route, which basically stops them from taking endless interest from you and keeping you in debt for decades.

EggysMom Tue 29-Sep-20 07:47:40

As others have said, I think it's because it's the 'last' £300 you have available on the card. They may be concerned for your motives - max out the card and then stop paying. Or it may be that, with interest being applied immediately, the very next day you would be over the maximum; so you could try seeing if it lets you withdraw £200 instead.

Of course the answer is to phone customer services for the credit card and ask them.

Join the discussion

To comment on this thread you need to create a Mumsnet account.

Join Mumsnet

Already have a Mumsnet account? Log in