Can You Use a Credit Card to Purchase Cryptocurrency? According to a recent Congressional Research Service analysis, there were more than 5,100 distinct cryptocurrencies in use as of March 2020, totaling nearly $231 billion. And as bitcoin use rises to historic levels, more individuals want to participate in the potential.
You must utilize an exchange to buy cryptocurrency, which is essentially a website where you can convert one currency to another. For instance, if you wanted to buy Bitcoin, Ripple, or another cryptocurrency, you might utilize an exchange to swap U.S. dollars for such currencies. You may want to think about utilizing a credit card for your purchase if you’ve come across an exchange that does so.
But buying cryptocurrency using a credit card isn’t the same as buying a book from the bookstore with a credit card. It costs more and is riskier. Discover the mechanics of the procedure and any potential downsides.
Can You Buy Crypto With a Credit Card?
If your card issuer and payment network permit it, you can buy cryptocurrency with a credit card. For instance, American Express permits cryptocurrency purchases, treats them as cash advances, and may have a cash advance cap. Chase will begin classifying bitcoin purchases as cash advance transactions in April 2021.
The reasons why credit card companies do prevent bitcoin purchases differ. For instance, Capital One decided to prohibit cryptocurrency purchases in order to shield cardholders against fraud, losses, and market volatility. Before starting a transaction, you can check with your credit card company to see whether they have restricted purchases of cryptocurrencies.
Only bank accounts, debit cards, wire transfers, and PayPal are accepted payment methods to attach to your account on Coinbase, one of the biggest cryptocurrency exchanges. However, there are restrictions on what you can do with a wire transfer and PayPal.
How Does Buying Crypto With a Credit Card Work?
You should be aware of the procedure and any potential fees before using your credit card to buy cryptocurrency—or perhaps before buying any cryptocurrency at all.
You May Have to Pay a Transaction Fee
When you use a credit card or a debit card to buy cryptocurrency, the cryptocurrency exchange might impose transaction fees, which they will disclose to you at the time of your transaction. It normally costs nothing, however, using ACH (your checking account and routing information) takes a few days to post to your account. You’ll have to decide between slow and free or fast and pricey. Making a hasty purchase because you anticipate a price increase may not be the best course of action.
The Purchase May Be a Cash Advance
Along with any transaction fees charged by the cryptocurrency exchange, you will also be required to pay a cash advance fee if the transaction is treated as a cash advance, as it does with American Express. On a credit card, the standard cash advance cost is $5 or 10% of the transaction’s total, whichever is higher. Therefore, if you use a credit card to buy $1,000 worth of bitcoin, the credit card company may charge you a fee of $100.
Even if you use a credit card with no debt, you’ll still be subject to the higher cash advance APR and lose the grace period. If so, interest will start accruing the moment you complete the transaction.
Using a credit card to acquire cryptocurrency is significantly more expensive than making regular purchases due to the potential costs. The purchase won’t earn you rewards or help you meet the spending requirements for a new credit card’s sign-up bonus.
There Could Be a Foreign Transaction Fee
You can be charged a foreign transaction fee if the cryptocurrency exchange is located outside of the United States. Your credit card company will normally deduct 3% of the transaction amount as foreign transaction fees. For each $1,000 worth of cryptocurrencies you buy, a $30 foreign transaction fee will be charged.
You May Have a Daily Limit
The quantity of bitcoin you can buy might be restricted depending on the platform. After connecting to your bitcoin exchange account, check your account settings to confirm your restrictions.
Drawbacks to Buying Crypto With a Credit Card
Buying and holding cryptocurrencies is frequently viewed as a dangerous activity. While buying cryptocurrencies offers numerous advantages, using a credit card may have certain disadvantages that you should be aware of.
Your Credit Card Information Could Be at Risk
Before making any cryptocurrency purchases, it’s crucial to conduct extensive research because many cryptocurrency exchanges are scams that take advantage of people’s desire to make a profit. Of course, having credit card fraud protection removes your responsibility for any unauthorized purchases made with your card. Regardless of the payment method you use, you still want to be sure you’re not being conned.
Your Credit Score Could Be Impacted
Your credit score is greatly influenced by your credit utilization, or how much credit you really utilize. Your credit score is impacted by how much credit you utilize. Using your credit card extensively for cryptocurrency is likely to lower your credit score. The situation gets worse if you overcharge and then fall behind on your payments.
Frequently Asked Questions (FAQs)
What are the best ways to buy cryptocurrencies?
How can beginners buy bitcoin?
If you’re just getting started, using an ATM or a mobile digital wallet is the ideal way to purchase bitcoin. Finding online resources like Coinbase is a safer choice for huge transactions.