Can you buy cryptocurrency with a credit card? Here is what you need to know

With all the buzz around cryptocurrency These days, you might be considering pulling out the old credit card and joining the crypto craze. Unfortunately, it can be a bit of a hassle to purchase digital currency with credit card accounts. But the difficulty alone isn’t the only reason to think twice about swiping for Bitcoin. Read on to see what you should consider before using your credit cards to invest in cryptocurrency.

Can you buy crypto with a credit card?

If you are wondering if you can use a credit card to buy Bitcoin or other cryptos, the answer is yes, but not easily.

On the one hand, you will first need to find a cryptocurrency exchange. It’s a business that makes it easy to buy and sell cryptocurrency, much like a stock exchange. You will also need an exchange that allows credit card transactions. Many popular exchanges don’t allow credit card purchases at all. Crypto exchanges that do taking credit cards will charge you for the privilege, and these fees can add 3% or more to your transaction.

Of course, even if you’re willing to pay the exchange fee to use your card, your credit card issuer could still be a problem. Most of the major card companies have banned the purchase of cryptocurrency.

Why? There are several main reasons card companies don’t allow crypto purchases:

  1. Uncertainty: If you’ve spent a lot of time researching crypto, you’ve undoubtedly seen the extreme highs and lows that Bitcoin has experienced over the past few years. Many other cryptocurrencies have had similar (albeit less publicized) stories. This volatility makes cryptocurrency stocks very risky, and banks are notoriously risk averse. They won’t let you use your line of credit – also known as “their money” – to make risky purchases.
  2. Bad regulation: Unlike most other financial products, there is very little regulation when it comes to cryptocurrency. The lack of regulation adds even more uncertainty to an already very risky product. It can also lead to legal complications down the line, something that banks don’t like at all.
  3. Cash equivalence: Another reason card issuers aren’t big fans of cryptocurrency is that it can be exchanged for real currency. This can raise issues of money laundering, tax evasion, and other legal issues. This is the same reason why many card issuers will not allow you to purchase Money Orders.

All of this means that you will need to look for a credit card company that doesn’t block cryptocurrency purchases outright. And if you’re diligent enough to find an issuer that can be used to buy crypto, be prepared to pay for it – again.

Do you remember point number three? Cryptocurrency purchases are treated as cash equivalent transactions, which fall within the scope of a credit card cash advance. So, in addition to the exchange’s credit card fees, you will likely be charged a cash advance fee, which can mean an additional 3-5% fee per transaction. Plus, cash advances start earning interest as soon as they land in your account, often at an above-standard APR.

How does buying crypto work with a credit card?

The actual process of buying cryptocurrency with your credit card is similar to any other online purchase – more or less:

  1. Find a credit card issuer that will allow you to buy cryptocurrency.
  2. Find a cryptocurrency exchange that allows credit card purchases.
  3. Buy your crypto.

As noted above, the hardest part will probably be finding a credit card issuer and cryptocurrency exchange that allows for such transactions.

Once you’ve chosen a credit card and crypto exchange, you can complete your purchase. The step by step process will vary depending on the individual platform. Usually, you will start by opening an account with the exchange. Then you can choose the currency and amount you want to buy, and tell the exchange where to send your currency. Finally, you will enter your card information and complete the transaction.

Since any card issuer that allows you to buy cryptocurrency will likely treat it as a cash advance, be sure to pay for your purchase as soon as it is settled. This will limit the amount of credit card interest you will have to pay on your transaction.

Pros and Cons of Buying Crypto with a Credit Card

There are many downsides to buying crypto with a credit card. In fact, there are so many downsides that they completely erase any potential benefits:

  • May not be able to earn rewards
  • May not count towards credit card signup bonuses
  • Many credit card protections will not apply
  • High fees

For example, a typical pro in using your credit card is earning rewards. However, since most issuers that allow cryptocurrency purchases classify them as cash advances, you likely won’t earn credit card rewards. Likewise, cash advances usually don’t count towards signup bonus expenses, so you won’t even get a welcome bonus for your troubles.

It also means that many of the protections you would normally get for purchases made with your credit card won’t apply. So don’t expect to be able to file a refund request for your crypto purchase if your currency is losing value.

And, of course, there are the many, many fees. The crypto exchange will charge you 3% or more to use your card – and yes, that is above whatever they charge for the trade in the first place. Then the credit card issuer will likely charge an additional 3% or more for the cash advance fee, plus any interest accrued before you refund the transaction. This means that you are probably paying at least a 6% fee just to use your card.

Other considerations

Beyond the fees and complications, the big consideration when buying cryptocurrency with a credit card – or not at all – is the uncertainty of digital currencies. Over the past five years or so, cryptocurrency has gone from niche gadgets to trading floor buzzwords. Part of what led to such a rise in notoriety was the extremely volatile nature of cryptocurrencies like Bitcoin.

Using a credit card to buy cryptocurrency essentially means going into debt for a very uncertain investment. If this investment does not pay off, you will still have to pay off your credit card debt. Plus, you may end up with interest or other charges that make your initial purchase all the more expensive to pay off.

Which brings us to use. Depending on the amount of crypto you charge (and the number of associated fees you incur), your credit usage – the amount of available credit you use – could skyrocket. High usage is a warning sign for issuers and credit scoring algorithms. As your credit utilization rate increases, your credit score will drop.

Overall, buying crypto with credit cards is the ultimate example of can against should. Can are you buying crypto with your card? Sometimes. Should are you buying crypto with your card? Absolutely not.

About Michael Terry

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