Can I Buy Gift Cards With Credit Cards?
Understand the nuances of purchasing gift cards with credit cards. Navigate issuer policies, potential costs, and how card benefits apply.
It is often possible to purchase gift cards using a credit card. While technically feasible at many retailers, this transaction comes with several considerations that can impact its overall cost and benefit. Understanding the various policies and financial implications involved is important before proceeding with such a purchase.
Credit Card Issuer and Merchant Policies
The ability to use a credit card for gift card purchases is subject to rules set by both the credit card issuer and the specific merchant. Credit card issuers, such as Visa or Mastercard, have their own policies regarding how these transactions are categorized. Some may prohibit it entirely, while others might classify it as a cash advance, which carries significant financial consequences. Some issuers may even allow it as a standard purchase.
Individual retailers, whether online or brick-and-mortar, also establish their own rules for gift card sales. Many stores might impose limits on the amount of gift cards that can be purchased with a credit card, particularly for high-value transactions. Additionally, policies can differ based on the type of gift card being purchased.
Gift cards are broadly categorized into two types: closed-loop and open-loop. Closed-loop gift cards are specific to a single retailer or a group of affiliated merchants, like a store-branded gift card. Open-loop gift cards function more like prepaid debit cards and can be used wherever that network is accepted. Merchants may have stricter policies or even require cash for open-loop gift cards due to their cash-like nature. It is advisable to review both your credit card agreement and the merchant’s specific policy before attempting to buy a gift card with a credit card.
Transaction Categorization and Associated Charges
When purchasing gift cards with a credit card, the transaction’s categorization by the credit card issuer is important, as it directly affects potential charges. A primary concern is the possibility of the purchase being treated as a cash advance. A cash advance occurs when you use your credit card to obtain cash or cash-like equivalents, and gift cards can sometimes fall into this category.
If a gift card purchase is classified as a cash advance, several financial implications arise. An immediate cash advance fee is typically applied, often ranging from 3% to 5% of the transaction amount, or a minimum of $10. Unlike standard purchases, interest on cash advances begins accruing immediately from the transaction date, without any grace period. The interest rates for cash advances are generally higher than those for regular purchases, often ranging from 18% to 30% Annual Percentage Rate (APR).
Other potential charges could include purchase fees, which are activation fees applied to the gift card itself, ranging from approximately $2.95 to $6.95 for open-loop cards. Foreign transaction fees might also apply if the purchase is made from an international vendor. The merchant category code (MCC) assigned to the retailer can influence how your credit card issuer categorizes the transaction. After any such purchase, carefully review your credit card statement to confirm the transaction’s categorization and any applied fees.
Utilizing Credit Card Features for Gift Card Purchases
When a gift card purchase is processed as a standard retail transaction, it may qualify for earning credit card rewards, such as points, miles, or cashback. Many cards offer rewards on every dollar spent, and if the gift card falls within a bonus category, like groceries or gas, the rewards earned could be even higher. However, if the transaction is treated as a cash advance, no rewards will typically be earned.
Some individuals consider using gift card purchases to help meet minimum spending requirements for credit card sign-up bonuses. However, certain credit card issuers, such as American Express, may explicitly exclude gift card purchases from counting towards these spending thresholds.
Credit card benefits like purchase protection and extended warranty generally do not apply to gift card purchases. These features are typically designed for physical goods or services and protect against theft, damage, or manufacturing defects of tangible items. Gift cards represent monetary value rather than a product, and are often listed as excluded items in the terms and conditions of these protection policies.