How Can I Use My Credit Card to Send Money?

Credit cards are primarily designed for purchases. However, specific mechanisms allow individuals to transfer funds directly using their credit line. Understanding these methods and their financial implications is important for anyone considering using a credit card for sending money.

Methods for Sending Money with a Credit Card

One common way to obtain cash using a credit card is through a cash advance, which involves borrowing against your available credit limit. This differs from a typical purchase as it provides liquid funds rather than facilitating a transaction with a vendor. You can obtain a cash advance at an automated teller machine (ATM), directly from a bank teller, or by utilizing convenience checks.

To get a cash advance at an ATM, insert your credit card and input your Personal Identification Number (PIN). After selecting the cash advance option and entering the desired amount, the ATM dispenses cash, subject to daily withdrawal limits. For an in-person transaction, visit a bank branch displaying your credit card’s network logo. Present your credit card and government-issued photo identification to a teller to request the cash advance directly.

Some credit card issuers provide convenience checks linked to your account. These checks function similarly to personal checks, but when cashed or deposited, the funds are drawn against your credit limit and treated as a cash advance. This method allows for a flexible transfer of funds, as the check can be deposited into a bank account. Peer-to-peer (P2P) payment applications offer another avenue for sending money using a credit card.

Popular P2P apps like PayPal, Venmo, and Cash App allow users to link a credit card as a funding source. To send money, link your credit card in the app’s settings. Select the recipient, enter the amount, choose your credit card as the funding source, and confirm the payment. These services often distinguish between payments funded by a linked bank account or debit card, which may be free, and those funded by a credit card, which usually incur a fee.

Understanding the Costs and Fees

Using a credit card to send money incurs specific financial costs that differ significantly from standard purchases. Cash advances come with an upfront transaction fee. This fee is commonly a flat amount, such as $10, or a percentage of the advance amount, often ranging from 3% to 5%, whichever is greater. For example, a $300 cash advance with a 5% fee would incur a $15 charge.

In addition to the transaction fee, cash advances are subject to a higher Annual Percentage Rate (APR) compared to regular purchases. While average credit card interest rates might hover around 20%, cash advance APRs can be considerably higher, sometimes closer to 30% or more. This elevated interest rate means the cost of borrowing increases quickly.

Cash advances have no grace period. Unlike purchases where interest typically begins accruing after the statement due date, interest on a cash advance starts accumulating immediately from the transaction date. This immediate accrual means that even if the advance is repaid quickly, some interest will still be charged. For example, a $1,000 cash advance at a 24% APR accrues about $0.65 in interest daily.

When using P2P payment applications to send money with a credit card, the app usually applies a separate fee. This fee is commonly a percentage of the transaction amount, often around 3%. For example, sending $100 via a P2P app using a credit card might cost an additional $3. This charge is separate from any potential cash advance fees or interest the credit card issuer might impose, as some card issuers categorize P2P payments funded by credit cards as cash advances. Foreign transaction fees could also apply if the transfer involves international recipients.

Important Considerations Before Sending Money

Before initiating a money transfer with a credit card, understand the practical limitations and potential consequences. The amount you can send is restricted not only by your overall credit limit but also by a separate, often lower, cash advance limit set by your card issuer. This cash advance limit is typically a percentage of your total credit limit, meaning you cannot access your entire credit line for cash advances.

Using a significant portion of your available credit, especially through cash advances, can impact your credit utilization ratio. This ratio, which compares your outstanding credit balance to your total available credit, is a factor in credit scoring. A high credit utilization ratio, generally considered above 30%, can suggest a higher credit risk and potentially lower your credit score.

Given that interest on cash advances begins accruing immediately, timely repayment is important to minimize the overall cost. The sooner the cash advance balance is paid off, the less interest will accrue, reducing the total amount owed. Credit card companies generally apply payments above the minimum amount due to balances with the highest interest rates first, which is typically the cash advance balance.

When sending money through P2P apps or other platforms, verifying recipient details is important to ensure funds reach the intended person. Utilizing secure platforms and confirming transaction details before finalizing the transfer helps protect against errors and potential fraud. The recipient must also have the necessary account setup, such as a P2P app account or a linked bank account, to successfully receive the funds.