Can You Buy a Gift Card With a Credit Card?

Buying a gift card with a credit card is a common transaction that presents various considerations. While it is often possible to use a credit card for certain types of gift cards and in specific retail environments, there are important distinctions regarding merchant policies, credit card issuer rules, and potential financial implications. The ability to purchase a gift card with a credit card is not a simple yes or no, as it depends on several factors.

Merchant and Card Issuer Policies

Retailers and credit card companies maintain distinct policies regarding gift card purchases made with credit cards. Many retailers generally permit credit card purchases for their own store-branded gift cards, often classifying these transactions as regular merchandise sales. This treatment means such purchases are typically processed similarly to buying any other item from that store.

Conversely, many merchants, particularly large retailers or financial institutions, may impose restrictions on using credit cards to buy open-loop network gift cards, such as those branded by Visa, Mastercard, or American Express. These types of gift cards function similarly to cash, which raises concerns about potential fraud and money laundering. Consequently, some sellers may limit or prohibit credit card payments for these universally accepted gift cards.

Credit card issuers also play a significant role in how these transactions are categorized. While most retail purchases are coded as “merchandise,” an issuer might classify gift card purchases, especially for open-loop cards, as “cash equivalents” or “cash advances.” This internal coding by the issuer determines how the transaction is treated. Restrictions are more frequently encountered at points of sale where cash-like transactions are common, such as certain pharmacies or grocery stores, rather than at department stores selling their own branded gift cards.

Understanding Cash Advance Implications

A cash advance on a credit card involves borrowing cash directly from an available credit line. This differs significantly from standard purchases and carries distinct financial consequences. When a gift card purchase is coded by the credit card issuer as a cash equivalent or cash advance, it incurs specific charges that can make the transaction more expensive. This coding often occurs with open-loop gift cards because of their easy convertibility into cash.

One of the primary costs associated with a cash advance is a transaction fee. This fee is typically either a flat amount, such as $10, or a percentage of the transaction, commonly ranging from 3% to 5%, whichever is greater. For example, a $100 gift card purchase coded as a cash advance could incur a $5 fee.

Beyond the fee, cash advances generally come with a higher Annual Percentage Rate (APR) than standard purchases, often ranging from 24.99% to 29.99%. Unlike regular purchases that may offer a grace period before interest accrues, interest on cash advances typically begins immediately from the transaction date. This immediate accrual of interest means the cost of borrowing starts compounding right away, even if the balance is paid off shortly after. A cash advance also reduces your available credit limit, similar to any other charge, impacting your overall credit utilization.

Impact on Credit Card Rewards and Benefits

Purchasing gift cards with a credit card can influence the accumulation of rewards and the fulfillment of spending requirements for welcome bonuses. When buying store-branded gift cards, these transactions are frequently treated as regular purchases and typically qualify for standard credit card rewards, such as points, miles, or cashback.

However, transactions coded as cash advances or cash equivalents generally do not earn rewards. This exclusion makes using a credit card for open-loop gift cards or cash advances disadvantageous for earning rewards. Some credit card issuers, including certain American Express cards, explicitly state in their terms and conditions that gift card purchases, particularly those for prepaid or cash-equivalent cards, may not be eligible for rewards.

Regarding welcome bonuses and minimum spending requirements, the treatment of gift card purchases varies. If a gift card purchase is processed as a regular retail transaction, it will typically count towards meeting the spending threshold for welcome bonuses or other promotional offers. Conversely, if the transaction is coded as a cash advance, it will generally not contribute to these spending requirements. Therefore, understanding how a specific gift card purchase will be coded by both the merchant and your credit card issuer is important for maximizing credit card benefits.