Can You Use a Credit Card to Send Money?

Using a credit card to send money is possible, though it operates differently than a typical purchase. These transactions involve distinct mechanisms and carry specific financial implications. This article details common methods for transferring funds with a credit card and explores the financial characteristics involved.

Methods for Sending Money Using a Credit Card

One common method for accessing funds from a credit card is through a cash advance, which allows cardholders to obtain physical cash. This can be done at an automated teller machine (ATM) using a Personal Identification Number (PIN) or by visiting a bank branch to request funds directly from a teller. Credit card issuers also sometimes provide convenience checks, which are pre-printed checks linked to the credit card account that can be written out to a recipient or deposited into a bank account.

Beyond direct cash withdrawals, various peer-to-peer (P2P) payment applications enable users to link a credit card to send money digitally to individuals. Services like PayPal or Venmo allow users to select their credit card as the funding source when initiating a payment to another user within the application. The user simply enters the recipient’s details and the amount, then confirms the credit card as the payment method.

Online bill payment services provide another avenue for using a credit card to send funds, particularly for recurring expenses or payments to individuals and small businesses. These platforms facilitate payments for items such as rent, tuition, or even loan installments, where the service acts as an intermediary. The cardholder provides their credit card details to the service, which then processes the payment to the designated payee, often for an additional charge.

Some merchants or financial institutions may permit the purchase of money orders or the initiation of wire transfers using a credit card. When a credit card is used for such transactions, it is processed as a cash advance or a specific type of purchase, depending on the merchant’s system and the card issuer’s policies. This allows for a traceable way to send funds to recipients who may not accept direct credit card payments.

Costs Associated with Sending Money

Credit card issuers impose a cash advance fee when funds are obtained through methods like ATM withdrawals or convenience checks. This fee is a percentage of the amount advanced, ranging from 3% to 5% of the transaction, or a flat minimum fee, such as $5 or $10, whichever is greater. This charge is applied immediately when the transaction posts to the account.

Cash advances accrue interest immediately from the transaction date.

The Annual Percentage Rate (APR) applied to cash advances is often higher than the APR for regular purchases on the same credit card account. While purchase APRs might range from 15% to 25%, cash advance APRs can be several percentage points higher, falling between 25% and 30%. This elevated rate contributes to the overall cost of borrowing.

When using P2P payment apps or online bill payment services to send money via a credit card, separate transaction fees are charged by the service provider. These service fees range from 2.9% to 3.5% of the transaction amount. These charges are added by the platform to cover their processing costs and are disclosed before the payment is finalized.

Credit Card Transaction Characteristics

Cash advances, unlike standard purchases, do not benefit from an interest-free grace period. This means that interest begins to accrue on the borrowed amount from the moment the transaction is posted to the account, rather than after the statement due date. Cardholders will see interest charges on their next billing statement for these specific transactions.

Transactions that involve sending money, particularly cash advances, immediately reduce a cardholder’s available credit limit. This can lead to an increase in the credit utilization ratio, which is the amount of credit used compared to the total credit available. A higher credit utilization ratio is a factor considered by credit scoring models like FICO and VantageScore, potentially impacting an individual’s credit score.

Credit card rewards programs exclude cash advances and certain other money-sending transactions from earning points, miles, or cashback. These types of transactions are categorized differently by the card issuer and are not considered eligible spending for rewards accumulation. Cardholders should review their credit card agreement to understand which transaction types qualify for rewards.

The level of consumer protection for money-sending transactions, such as cash advances, can differ from that afforded to standard purchases. Disputes related to billing errors on cash advances may not fall under the same protections provided by regulations like the Fair Credit Billing Act (FCBA), which primarily covers disputes for goods and services purchases.