Can You Pay for Gift Cards With a Credit Card?

Consumers often wonder if credit cards can be used to purchase gift cards. This common question arises as both are widely used in daily transactions. The ability to do so depends on policies set by both the retailer and the credit card issuer.

Retailer Policies on Credit Card Payments

Retailers often establish policies on credit card gift card purchases. While many stores accept credit cards for these transactions, some restrict them to mitigate risks. Retailers may limit such purchases to prevent fraud or money laundering, as gift cards can be converted to cash or used in illicit activities. Additionally, retailers incur processing fees (interchange fees) when customers use credit cards, and they may seek to avoid these costs for cash-equivalent transactions.

Policies differ between open-loop and closed-loop gift cards. Open-loop cards, like Visa or Mastercard, function similarly to debit cards and can be used almost anywhere. Due to their broad acceptance and cash-like nature, retailers are more likely to restrict credit card purchases of these types of gift cards. Closed-loop cards, which are specific to a particular store or brand, may face fewer restrictions, though some retailers still impose limits on the total value or number of cards that can be bought in a single transaction with a credit card.

How Credit Card Companies Classify Gift Card Purchases

Even when a retailer accepts a credit card for a gift card purchase, the credit card issuer determines how that transaction is classified. Most purchases are categorized as standard retail transactions, qualifying for typical billing cycles and rewards. However, some credit card companies may classify gift card purchases, particularly those for open-loop cards, as cash advances. This classification occurs because the issuer views the gift card as a direct access to cash rather than a purchase of a tangible good or service.

A cash advance is a transaction where a cardholder receives cash or a cash equivalent directly from their credit line. Credit card issuers have systems in place to identify and code transactions that resemble cash disbursements. This coding is a decision made by the credit card company based on their internal policies and the specific merchant category code of the transaction. The classification as a cash advance can vary between different credit card agreements and is not determined by the retailer at the point of sale.

Navigating Fees and Rewards

The classification of a gift card purchase significantly impacts fees and rewards. If a credit card issuer codes a gift card purchase as a cash advance, immediate fees typically apply. These cash advance fees usually range from 3% to 5% of the transaction amount, with a minimum flat fee often around $10. Unlike standard purchases, interest on cash advances often begins accruing immediately from the transaction date, without any grace period, and at a higher annual percentage rate compared to purchase APRs.

Gift card purchases can also affect credit card rewards. Many credit card rewards programs explicitly exclude cash advances from earning points, miles, or cashback. Even if a gift card purchase is processed as a standard transaction, some credit card terms and conditions specifically state that gift card purchases or cash equivalents do not qualify for rewards. Consumers should review their credit card’s terms and conditions or rewards program rules to understand how these types of transactions are treated before making a purchase.