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  1. What are some ways to borrow cash from a credit card?
  2. Are cash back and cash advance different functionalities? Is cash back the one when sellers asks customers/cardholders on checkout for purchases? Is cash advance the one when cardholders use their credit cards on ATM machines?
  3. Do both cash back and cash advance incur transaction fee? Or are they or one of them free?
  4. How is getting cash from credit card compared to getting cash from a debit card on ATM machines?

Thanks!

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Cash Back

When you go to a grocery store and want to purchase $12.34 you have several different ways of paying:

  • Cash: give them $20 and get back $7.66
  • Check: write a check for $12.34 and get nothing back in change.
  • Check: write a check for $62.34 and get $50 cash back in change. Your bank will deduct 62.34 from your checking account.
  • Debit card : same options as a check. Though the deduction takes place much quicker.
  • Credit card: authorize a charge of $12.34
  • Credit card: authorize a charge of $62.34 and get $50 cash back in change. Your credit card company will increase the amount you owe by $62.34.

If you use the credit card in the example above, you will ultimately have to repay the $50 when the bill is due. The store / credit card company decides the maximum amount of cash you can get above the purchase amount. The store wants an amount that makes the customer happy, but one that doesn't drive their costs too high. The credit card wants it high enough to keep everybody happy, but not so much it becomes a risk for them. You could conceivably do more than one transaction a day.

Cash Advance

A cash advance is where you go to an ATM/Bank and get a much larger amount out. The maximum amount is typically 1/2 your credit limit. The actual amount is set by the bank/credit card company. These will have fees, and you going to be charged interest every day until you pay it back. Another way to get a cash advance is to use one of those special checks they send you in the mail. These are a cash advance against your account.

Rewards programs

In addition some credit cards have rewards programs. You can earn airline miles, free gifts, or cash back based on the amount of charges you put on the card each month . The "points" or dollars you earn in these programs come from the fees the vendors pay. When you spend money at the store, the credit card company collects a fee of ~2% on the transaction from the store. If you charge a lot each month, and the credit card company makes money even if you pay the balance each month. They fund these reward programs from the vendor fees. Charge $12.34 the credit card company charges a quarter, spend $62.24 they charge a dollar more.

  • 2
    I hate those "special checks". – C. Ross Sep 21 '12 at 15:37
  • Thanks! I still don't understand why store is willing to provide cashback. Isn't it that the more the purchase cost is, the more fee the store pays to the credit card compnay? – Tim Sep 21 '12 at 22:02
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    It is a service. Once one store started to offer it, others had to match the level of service. – mhoran_psprep Sep 21 '12 at 22:04
  • (1) Does cash back from stores happen only when credit cards are used in debit mode, instead of credit mode? (2) Also in cash advance, must the interest be paid from the day one after the money is borrowed, unlike purchase, whose payment can be delayed without interest generated until some later due date. (3) for balance transfer to a credit card, is interest paid from day one of borrowing from the card holder to the card company? (4) PS: I think I mixed up two meanings of cash back: one is still a loan, and the other is a reward. – Tim Sep 22 '12 at 17:38
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    1) Credit cards are never in debit mode. They are credit cards. 2) as Dheer described cash advance has no grace period 3) balance transfer is unrelated to this question. The rules for fees and interest for balance transfers depends on the deal the credit card company is running. Some times interest is waived for X months. They want your business so they cut you a deal.4) yes you mixed up the two meanings of cash back. – mhoran_psprep Sep 22 '12 at 22:57
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Getting cash from Credit Card is expensive. There are multiple type of charges depending on the Bank;
- A fixed Transaction / cash Advance Charge.
- A percentage fee on the amount of withdrawl.
- Interest from the day of withdrawl till the date of payment. [Unlike purchases, there is no grace period for payments]

Getting cash from Debit card is no charge.

Cash Back is the loyalty bonus when you purchase from some stores [can even be wider] essentially involves passing back some of the fees Bank would make back to the customer.
Edit:
On every card swipe of say 100, the merchant gets only 97.5, the rest 2.5 goes as fees, of which the merchant Bank [where the POS/Gateway is connected] gets 0.5, Card Company [Visa/Master/Amex/etc] get 0.5, the Issuing Bank [the one that gave you credit card] gets 1.5. The reason they get large amount is because they give you a average credit of 30 days [at times 10 days at times 50 days depending on when the transaction was done] ... If the same bank as POS, then on the transaction the Bank makes both legs of fees, ie 2. It is from this fee, they can pass back a small amount say 1 to you.

Again the above is slightly simplified, the fees and distribution varies from Visa to master and from one Merchant Bank to Other, the Cash Back itself is conditional [tied to places where it has POS] or unconditional for limited period to get more customers, or built with other spedning incentives [ie spend minimum of X amount to get cash bank], essentially encouraging spending and not all may be rewarded, or a cap on the total cash back given.

  • Thanks! I dont understand what "passing back some of the fees Bank would make back to the customer" means. – Tim Sep 21 '12 at 9:58
  • I saw your edit. Do you think it is rewards given by a bank to the card holder when saying "passing back some of the fees Bank would make back to the customer"? It doesn't seem like cash back, because cash back is still needed to be paid by the card holder the the credit card bank. – Tim Sep 22 '12 at 1:12
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Call card A up. Negotiate balance transfer fee away/down. Transfer to a card B that has no balance. Get the card B company to send you a refund for your (now) credit balance. Some will let you do a balance transfer to your bank account, which is a bit simpler if it's allowed. If you use the credit card checks, you lose the opportunity to negotiate the rate and fee. You'll just pay the offered rate (which can sometimes be attractive anyway).

protected by Chris W. Rea Dec 23 '16 at 1:49

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