Can You Buy a Gift Card With a Credit Card?
Learn whether buying gift cards with a credit card is feasible. Understand the nuances of this transaction and its true implications.
Many individuals consider using a credit card to purchase a gift card for various reasons, such as earning credit card rewards, managing expenses, or simplifying gift-giving. Understanding the intricacies of these transactions involves navigating various policies and financial considerations.
Understanding Purchase Policies
The ability to purchase a gift card using a credit card largely depends on the policies of both the retailer and the credit card issuer. Many retailers implement specific rules regarding gift card sales, often to mitigate risks like fraud and money laundering. These policies might prohibit credit card payments for gift cards, especially for large denominations, or limit the number of gift cards purchased in a single transaction.
Retailers often distinguish between different types of gift cards. Closed-loop gift cards, redeemable only at the issuing merchant, may have fewer restrictions. In contrast, open-loop gift cards, such as those branded with Visa, Mastercard, or American Express, function similarly to debit cards and are accepted at a wider range of merchants. Retailers are typically more cautious with open-loop cards due to their cash-like nature.
Credit card issuers also have their own set of policies that can impact these transactions. They may flag large or frequent gift card purchases as suspicious activity, potentially leading to a temporary hold on the account or requiring verification. Some issuers might even categorize certain gift card purchases differently than standard retail transactions, which can have significant financial implications for the cardholder.
Financial Implications
When a gift card purchase with a credit card is permitted, understanding the financial implications becomes paramount. One immediate consideration is the potential for activation fees, particularly common with open-loop gift cards. These fees, which can range from a nominal $2.95 to $6.95 or more, are added to the face value of the card at the time of purchase and are non-refundable.
A significant financial risk is the possibility of the purchase being categorized as a “cash advance” by the credit card issuer. This typically occurs if the gift card is purchased at a financial institution or a merchant whose primary business is seen as financial services. Cash advances incur immediate fees, often 3% to 5% of the transaction amount or a minimum of $5 to $10, and begin accruing interest from the transaction date, without a grace period.
The impact on credit card rewards is another crucial aspect. Many credit card programs specifically exclude gift card purchases from earning rewards points, cashback, or travel miles. Even if a purchase initially earns rewards, some issuers may claw back those rewards if the transaction is later identified as a gift card purchase. Furthermore, large gift card purchases can temporarily increase a cardholder’s credit utilization ratio, which is the amount of credit used compared to the total available credit. A high utilization ratio, typically above 30%, can negatively affect credit scores, even if the balance is paid off quickly.
Where and How to Buy
Purchasing gift cards with a credit card is commonly done at various retail locations. Supermarkets, drugstores, and large department stores often feature extensive gift card displays, offering a wide array of closed-loop and open-loop options. When buying in-store, the process is similar to any other credit card transaction, though some retailers may require identification for larger purchases, such as those exceeding $500 or $1,000, as a fraud prevention measure.
Online purchases of gift cards are also possible through retailer websites or dedicated gift card aggregators. While convenient, online platforms might have stricter credit card acceptance policies for gift cards, or they may impose higher processing fees. Some online sellers may also limit the total dollar amount of gift cards that can be purchased within a certain timeframe to prevent bulk buying and potential misuse.
Regardless of the purchase location, it is advisable to review the terms and conditions of both the retailer and the credit card issuer before completing a transaction. This includes checking for any purchase limits per transaction or per day, as well as understanding the specific return or exchange policies for gift cards.