CAN I BUY CRYPTOCURRENCY WITH A CREDIT CARD?

23 April 4 MINS READ
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With all the talk about cryptocurrencies these days, you might be tempted to pull out your credit card and join in on the fun. Sure, it is possible to buy cryptocurrencies with a credit card, but it is tricky and risky. If you wouldn't buy stocks with your credit card, you shouldn't put cryptocurrencies on your card either.

However, many people do. You might be considering it as well. But, hold on a minute. You should at least understand how the process works and what risks you might face before taking the plunge.

Care to know?

Guess you should keep reading then.

CAN I BUY CRYPTOCURRENCY WITH A CREDIT CARD?

Using a credit card to purchase Bitcoin, Ethereum, stablecoins, or other cryptocurrencies is possible, but your credit card provider or the exchange selling the cryptocurrency may prevent you from doing so. Most credit card issuers in the U.S. prohibit cryptocurrency purchases, while some charge penalty fees. In the same vein, some major cryptocurrency exchanges don't accept credit cards.

So, to begin purchasing cryptocurrency using a credit card, you'll need a credit card issuer and a crypto exchange that both allows it. Even then, the fees will most likely prevent you from doing so.

HOW DOES BUYING CRYPTOCURRENCY WITH A CREDIT CARD WORK?

The procedure for purchasing crypto using a credit card is similar to any other online purchase:

1. Find A Credit Card Company That Allows Cryptocurrency Purchases: The first step is to check with your credit card company to see if crypto purchases are permitted. Inquire whether the transactions would be considered regular purchases or cash advances.

2. Look For A Crypto Exchange That Accepts Credit Cards: Before you move any further, you need to find a crypto exchange that accepts credit cards. Depending on whatever option you select, you may be required to provide personal information and proof of identity.

3. Make Your Crypto Purchase: The most difficult part will almost certainly be finding a credit card issuer and a cryptocurrency exchange that will accept this transaction. Once you have all that figured out, you can go ahead to make your purchase.

The step-by-step procedure will differ depending on the platform. But, in general, you'll begin by registering with the exchange. Then you select the currency and amount you want to buy and instruct the exchange on where to transfer your funds. You'll complete the transaction by entering your card details. Once you've confirmed all the details, go ahead and purchase.

4. Pay Off Your Balance: Since any card that permits you to buy cryptocurrency will most likely treat it as a cash advance, make sure you pay it off on time. This will reduce the amount of interest you have to pay on your credit card transaction.

PROS AND CONS OF BUYING CRYPTOCURRENCY WITH A CREDIT CARD

PROS

1. You Can Buy Crypto If You Don't Have The Cash

If you need to buy a certain coin before its value rises, you can use a credit card right away. That way you don't miss out on huge upward swings while waiting to save enough for a purchase.

2. The Purchase Could Earn Rewards

Many credit cards don't recognize crypto transactions like regular purchases, but if yours does, you may be able to save money on interest and get rewards on your purchases.

CONS

1. Cash Advance Fees

A cryptocurrency purchase may be treated as a cash advance by some credit cards. This implies that a cash advance fee, typically 5%, is applied to each cryptocurrency purchase. These charges are in addition to those levied by the vendor or the exchange. That means you'd have to make a lot of money in crypto before you even break even.

2. Credit Score

The overall amount of debt you owe, commonly known as your credit utilization, is one of the most important factors determining your credit score. A high credit utilization rate indicates that you are overly reliant on credit to get by, which will lower your credit score. Using a credit card for crypto transactions raises your outstanding debt. If you don't pay it off straight away, your credit score may suffer.

3. Debt

Cryptocurrency is already a risky investment. Purchasing it with credit is a sign you can't afford to lose that money. Plus, if you don't pay off your debt fast, interest charges may easily wipe out any return, as your purchase will most likely be classified as a cash advance and interest will begin accruing immediately, and at a higher rate. Most importantly, if your cryptocurrency investment loses value, the losses are compounded.

HOW ELSE CAN I BUY CRYPTOCURRENCY?

An electronic transfer from a bank — either linking a bank account to the exchange or setting up a wire transfer — is a better and more common way to pay for cryptocurrency transactions using dollars. You can also pay for crypto purchases using other cryptos on many exchanges. For example, you could sell Bitcoin to buy Ether.

BOTTOM LINE

If you want to get in on the crypto craze but have to rely on credit to do so, it may be a sign you aren't ready. Plus, buying cryptocurrency using a credit card is only possible if both your credit card company and your cryptocurrency exchange allow it.

Before you decide to buy cryptocurrency with a credit card, you should think about the potential drawbacks. Credit card transactions are usually accompanied by excessive fees that decrease the value of a good investment or lower returns by a substantial margin. You also run the risk of getting into a lot of debt, which may be very difficult to get out of.