Can You Use a Credit Card to Purchase a Gift Card?

Using a credit card to purchase a gift card is a common consideration for many consumers. While often possible, this practice is not always straightforward and involves various financial implications. Understanding these nuances is important to avoid unexpected costs or impacts on your credit.

General Acceptance and Merchant Policies

Credit card networks generally permit gift card purchases with a credit card, but the decision rests with individual merchants. Many brick-and-mortar retailers, including grocery stores, pharmacies, and department stores, commonly accept credit cards for gift card purchases. Online retailers also frequently offer this payment option.

Some retailers may impose restrictions, such as limits on transaction size or the number of gift cards purchased, often due to fraud or money laundering concerns. Policies can also differ between store-specific gift cards, redeemable only at that merchant, and general-purpose gift cards (e.g., Visa, Mastercard, American Express), which function more like debit cards and are accepted wherever the network is.

Understanding Potential Fees and Charges

Purchasing gift cards with a credit card can trigger specific fees and charges. A primary concern is the potential classification of the purchase as a “cash advance” by the credit card issuer. This occurs if the transaction is processed as a cash equivalent rather than a standard retail purchase, often linked to the merchant category code (MCC). While buying gift cards directly from a retail store usually processes as a purchase, large transactions or purchases of prepaid cards might be flagged as cash equivalents.

Cash advances are costly, incurring higher interest rates that begin accruing immediately without a grace period. These rates can be significantly higher, often close to 30% variable APR. Additionally, cash advances carry a flat fee or a percentage of the transaction amount, commonly ranging from 3% to 5%.

General-purpose gift cards often come with activation or purchase fees, separate from any cash advance fees. These fees can range from $2.95 to $6.95, varying with the card’s value, adding to the overall cost.

Impact on Credit Card Rewards and Benefits

Using a credit card for gift card purchases can affect your credit card rewards. Many credit card issuers exclude gift card purchases from earning rewards, especially if classified as cash equivalents or deemed “manufactured spending.” Manufactured spending involves using a credit card to generate rewards without a traditional purchase of goods or services, often through buying and liquidating gift cards. Issuers may deny rewards or close accounts if they suspect abuse.

Gift card purchases might also impact sign-up bonuses that require a certain spending threshold. Some credit card terms explicitly state that gift card purchases do not count towards these requirements. Reviewing your credit card’s terms and conditions is essential to understand exclusions related to gift card purchases and their impact on rewards or bonuses.

Considerations for Responsible Use

Using a credit card to buy gift cards requires careful financial management. Avoid carrying a balance on the credit card, as interest charges can quickly negate potential benefits like rewards earned. If a gift card purchase leads to an unpaid balance, the interest accrued will significantly increase the overall cost, especially if treated as a cash advance where interest begins immediately.

Purchasing gift cards with a credit card should not be a strategy to manage cash flow or spend money not readily available. The true cost includes its face value, activation fees, potential cash advance fees, and lost rewards. Understanding these costs and planning to pay off the credit card balance in full and on time is paramount for financially sound decisions.