Can You Buy Gift Cards With a Credit Card?
Uncover the essential factors when purchasing gift cards with a credit card, from purchase rules to unexpected costs and benefits.
The question of whether gift cards can be purchased with a credit card is common among consumers. While generally permissible, several factors influence this transaction, including specific retailer policies, the type of gift card, and the credit card issuer’s rules. This overview will clarify the various aspects involved and their financial implications.
Retailer Rules for Gift Card Purchases
The ability to purchase gift cards with a credit card often depends on individual retailer policies. Many stores permit these transactions, viewing gift cards as a regular product sale. However, some retailers implement restrictions, such as daily or per-transaction purchase limits, or may outright prohibit credit card use for them.
These limitations are frequently in place to mitigate risks like fraud and money laundering. Gift cards can be misused to “wash” money obtained through illicit means, making retailers cautious about large or frequent credit card purchases. Additionally, retailers may impose restrictions to avoid credit card processing fees on what they consider a cash-equivalent transaction, which can be less profitable than direct merchandise sales.
Distinctions in Gift Card Types and Purchase Methods
Gift cards fall into two categories with different implications for credit card purchases. Closed-loop gift cards are specific to a single merchant or brand, like a restaurant or retail chain. Retailers typically treat these as standard merchandise, making them easier to buy with a credit card in stores and online. They activate without additional fees beyond the loaded value.
Open-loop gift cards are issued by major credit card networks like Visa, Mastercard, or American Express. These cards function similarly to debit or credit cards and can be used anywhere the network is accepted. Due to their cash-equivalent nature, open-loop cards are often treated differently by credit card issuers and retailers. They are commonly sold at grocery stores, drugstores, and online gift card malls.
Financial Implications of Using Credit Cards
Purchasing gift cards with a credit card can involve various financial considerations. Open-loop gift cards, unlike closed-loop ones, typically come with activation fees. These fees are added to the card’s face value and can range from approximately $2.95 to $6.95, depending on the card’s denomination.
A concern is that a credit card issuer may classify a gift card purchase, especially an open-loop card, as a “cash advance” rather than a regular purchase. While most retail gift card purchases are standard, large transactions or those at certain financial institutions could be flagged. If treated as a cash advance, costly implications arise.
Cash advances incur higher Annual Percentage Rates (APRs), often 25% to 30%, accruing interest immediately without a grace period. Cash advance fees are also applied, usually 3% to 6% of the transaction or a flat fee, whichever is greater. This increases the total cost beyond the gift card’s value and may impact credit utilization, potentially affecting credit scores.
Credit Card Rewards Programs
Credit card rewards programs handle gift card purchases with varying policies. While some gift card purchases might earn standard rewards, many programs exclude them from bonus categories. For instance, a card offering bonus rewards on grocery purchases might not award those bonuses for gift card purchases made there.
Some credit card issuers explicitly state that gift card purchases, especially open-loop cards, do not earn rewards. This deters “manufactured spending,” where consumers attempt to earn rewards without genuine product purchases. Excessive or suspicious gift card purchases to exploit rewards can lead to consequences like rewards forfeiture or account closure. Consumers should always review their card’s terms to understand how gift card purchases are treated for rewards.