Can You Buy a Gift Card With a Credit Card?

It is generally possible to purchase gift cards using a credit card, but the ability to do so, and its advisability, depends on several factors. While many retailers and credit card issuers permit these transactions, specific policies can vary significantly. The type of gift card, the retailer’s rules, and the credit card network’s classification of the transaction all influence the outcome.

Retailer and Card Network Policies

Retailers often restrict or alter terms for purchasing gift cards with a credit card. A common reason for these restrictions is to prevent fraud and money laundering. Gift cards are considered “cash equivalents” because they can be easily converted into goods, services, or even cash, making them attractive for illicit activities if purchased with stolen credit cards or for laundering funds. Some stores may, for instance, limit gift card purchases to cash or debit card payments to mitigate these risks.

Credit card networks, such as Visa, Mastercard, and American Express, also play a role in how these transactions are processed. They might categorize gift card purchases differently than standard retail purchases. A credit card issuer could classify a gift card purchase as a cash advance rather than a regular retail transaction. This reclassification has significant implications for the cardholder.

If a transaction is treated as a cash advance, the cardholder will incur immediate and often higher costs. Cash advances typically come with specific fees, often a percentage of the transaction amount, usually ranging from 3% to 5%, and a higher annual percentage rate (APR) than standard purchases. Interest on cash advances begins accruing immediately, without the typical grace period offered for regular purchases. These policies deter the use of credit cards for obtaining cash-like instruments, which carry a higher risk for the issuing bank.

Understanding Different Gift Card Types

The type of gift card purchased influences whether a credit card can be used and under what conditions. Gift cards generally fall into two main categories: closed-loop and open-loop.

Closed-loop gift cards are specific to a single merchant or a limited group of affiliated merchants. For example, a gift card for a particular clothing store or restaurant chain is a closed-loop card. These cards can only be redeemed at the issuing retailer, limiting their convertibility. Due to their restricted use, retailers often allow the purchase of closed-loop gift cards with credit cards as part of a regular transaction, similar to buying any other product in their store.

Open-loop gift cards, conversely, are general-purpose cards that can be used anywhere the associated credit card network is accepted, such as Visa, Mastercard, or American Express gift cards. These cards function much like debit cards and are considered highly liquid, making them very close to cash equivalents. Because of their broad acceptance and ease of conversion, open-loop gift cards face more stringent restrictions when purchased with a credit card. Retailers and card issuers are more likely to treat these purchases as cash advances or impose limits to prevent fraud or money laundering. For instance, a supermarket might allow you to buy a closed-loop gift card for a coffee shop with your credit card, but they might restrict the purchase of a general-purpose Visa gift card to debit or cash.

Transaction Implications

When a gift card purchase with a credit card is permitted, several financial and practical consequences can arise for the consumer. These include the assessment of cash advance fees, which typically range from 3% to 5% of the transaction amount and accrue interest immediately without a grace period.

Another important consideration is the impact on credit card rewards. Many credit card programs exclude gift card purchases from earning rewards points, miles, or cashback. While some purchases might initially appear to earn rewards, the terms and conditions of the credit card agreement often specify that cash equivalent transactions, which can include gift card purchases, are ineligible. This means consumers attempting to “manufacture spending” to meet bonus thresholds or accumulate rewards may find their efforts nullified.

Such transactions can also affect a consumer’s credit utilization, particularly if treated as a cash advance. A cash advance immediately adds to the outstanding balance, potentially increasing the credit utilization ratio, which is the amount of credit used compared to the total available credit. A higher utilization ratio can negatively impact a credit score.

Gift card purchases typically do not carry the same consumer protections as standard credit card purchases. For example, chargeback rights, which allow consumers to dispute fraudulent or incorrect charges, may not apply to the underlying value of a gift card once it has been purchased and activated. This lack of protection means that if the gift card is lost, stolen, or the issuing company goes out of business, the cardholder may have limited recourse compared to a direct credit card purchase.