More than one in ten Americans are investing in cryptocurrency these days. The popularity of crypto increases day by day, just like how gold was the center of attraction in the 1850s. This cryptocurrency can be purchased using a credit card, but it can carry its own risk and danger.
Credit cardholders have the advantage of expecting transactions from both sides with cryptocurrencies and credit cards. Still, there is a lot of chances of losing money as the interest rates are high. You should go ahead with only the most reliable platforms like koinal for your transactions.
Essential Steps to Verify Before Purchasing Crypto with a Credit Card
First, the cardholder needs to determine whether one can purchase any kind of cryptocurrency with their card. Because American Express allows transactions, but they have strict terms and conditions. At the same time, Bank of America changed its rules in 2024, cryptocurrency as a cash advancer, after a viral post from Reddit.
As a next step, the cardholder must check whether the cryptocurrency accepts credit cards for deposits and purchases because all cryptocurrencies’ functioning varies and has different rules. For instance, only Coinmama, CEX.io, and Paxful accept credit cards as an exchange of money.
The next step is to verify what kinds of credit cards are accepted as an exchange. For example, Paxful, which has various bitcoin vendors, accepts Visa or Mastercard credit cards. So, if you have a different card, it is essential to verify whether they accept it or not.
Does Your Credit Card Company Accept the Purchase of Cryptocurrency?
As mentioned, the credit card purchase for cryptocurrency is not availed in most U.S credit card companies. One good example was when Citibank blocked the usage of credit cards for purchasing cryptocurrencies in 2018. This was done to protect fraudulent activities and prevent the company and the customers from facing a significant loss of money.
An important note is that not all banks include this information in their websites or in their company policies. So, it is better to make a call to the company directly to confirm the details to fewer chances of the risk.
Types of Fees Cardholders Can Expect
Cardholders can hope to pay charges to both the trade the money is bought with and the credit card user. Before performing any sort of purchase, make sure if there are any monetary benefits before incurring the charge is provided and also the exact cost for every purchase.
Exchange Cost of Cryptocurrency
A particular amount will be taken as a form of commission fee or as a service fee while using the card for any transaction. For example, cardholders are allowed to use Visa cards for the crypto purchase, but the U.S cardholders who have a minimum purchase of $20 are supposed to pay 2.99% as a commission fee.
This will also depend upon the vendor and the exchange. The fee changes depending on a few factors like the vendor’s location, the amount, and the types of cards used while purchasing.
Credit Card Company Fees
There are a few credit card companies that allow their customer to use a credit card to withdraw money from the ATM for purchasing cryptocurrency easily. But this can have a lot of issues.
Let us use normal card terms to act as an illustration for the kinds of expenses a cardholder can cause:
Cash Advance Fees:
The majority of the company charges cash advance fees for crypto purchases. Here the user must pay about 5 to 10% of the fee other than the fee charged for the exchange.
Cash Advance Interest Rates:
The APR of the cards can be very high, up to 25%, which is an interest that varies in the market with time. The interest will start to accrue from the day of purchase, and it will go till the day the credit has been paid. But if the cardholder pays the credit before 25 days, there will not be any accruing in interest.
No Credit Toward Rewards or Bonuses:
There are rewards and bonuses given when a user purchases, but this reward cannot be enjoyed when you use it for purchasing the crypto. The user does not qualify for the rewards or bonuses given by the crypto market.
Lower Credit Limits:
If you are planning to buy a big cryptocurrency using a credit card, then you might face some limitations. This occurs due to the cash advance terms and limitations, which have a very lower credit limit than the overall credit card limit that the card has.
Further Credit Card Risks the User Might Face Are
Foreign transaction fees:
An extra fee charge will be applied for vendors from other countries under the foreign transaction fee.
High risk for fraud:
Just like other online transaction risks, there can be a large possibility for fraudulent activities here too. It is important from the cardholder’s side not to give any important details of oneself.
High investment risk:
Investing in crypto itself can be a risk, and using credit can bring high chances of great debt. The crypto market is volatile, and due to the interest and extra fees, the cardholder can face a dramatic debt that cannot be paid on time.
Similar ways to buy crypto using credit cards
There are many start-up credit card companies that are providing bitcoin as a reward to their customers. For example, BlockFI, a new credit company, offers a 1.5% bitcoin reward for every single purchase made using their card.
Final Thoughts
On the whole, it is the buyer’s responsibility to check all the disadvantages of using a credit card to purchase cryptocurrency. Investing in crypto can be risky but definitely worth it, and it is much safer if one purchases this currency using a debit or direct transaction instead of a credit card.
Using a credit card for the purchase of cryptocurrencies can create a drop in investment because of the high fee. There are many crypto buyers who face a lot of debt due to these purchases made using a credit card too. Thus it is important to analyze and understand the policy offered by both the card company and the crypto market before any purchases.