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Monday, July 15, 2024

How to Buy Bitcoin With a Credit Card

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Bitcoin, the world’s largest coin by market capitalization, is currently traded on several exchanges across the globe.1

Factors to Consider When Purchasing Bitcoin With a Credit Card

Exchange Fees

When swapping dollars for Bitcoin or any other cryptocurrency, it’s important to understand that an exchange may charge a fraction of the transaction cost. In most cases, an additional fee is charged when investors decide to fund their accounts using credit cards. The exchange may also charge extra fees for its services. 

A typical example is Coinmama—every single purchase demands a fee and making payment with a credit card requires an additional fee of 5%.3 This means purchasing $1,000 worth of Bitcoin using credit cards will attract an extra fee of $33.40, excluding platform fees. You, therefore, will need a good return on investment to make up for the fees.

Debt

Bitcoin is volatile and this makes investing quite risky. It’s more risky if you’re using a credit card to go into debt to buy cryptocurrency. This translates into paying exorbitant interest on volatile investments.

Scams

Choosing a currency exchange without any security reputation can be risky. You might have your personal information, including your credit card number, stolen.

Cash Advance Penalties From the Card Issuer

Just like using your credit card to withdraw funds from an ATM, your credit card issuer is likely to view the crypto purchase as a cash advance.4 This isn’t favorable as it has the following downsides:

  • Higher interest rate: As with most payment processors, a higher annual percentage rate is charged for cash advances compared to regular purchases.
  • Foreign exchange fee: Should an investor use an exchange based outside the U.S., a foreign exchange fee may be incurred if the credit card charges one. This is usually a 3% fee.
  • Cash advance fee: Typically 3% to 5% of the amount withdrawn, this is a one-time fee charged when you take your advance. An advance of $100 will likely attract $3 or $5 in fees which will be deducted from your account balance.
  • No grace period: Credit card companies usually allow for a 21-day grace period to pay off your purchase before interest is charged. This only works provided you pay your balance in full monthly. This, however, doesn’t rule out the fact that cash advances start to accrue interest from day one.5
  • Lower credit limit: While there’s a general credit limit, some credit cards have a separate cash advance credit limit, which is lower than the general one.
  • Credit utilization: Using your credit to make small purchases such as groceries doesn’t have much impact. However, big crypto purchases use up your available credit which gravely impacts your credit scores.6
  • No credit card rewards: Using your credit card and maintaining a good credit score comes with significant rewards such as cash back, travel points, or miles. However, should the card issuer consider a crypto purchase a cash equivalent, your spending probably won’t qualify for rewards. Overall, this depends on the issuer. As part of your credit card research, you could call the company to ask whether a cryptocurrency purchase is considered a cash advance.

FAQs

How to Buy Bitcoin Anonymously With a Credit Card?

If you want to buy Bitcoin with a credit card without ID verification, you’ll still need a wallet where you can safely store the coins. Wallets such as ExodusMycelium, and Ledger Nano X are great choices since they support Bitcoin. 

To buy Bitcoin, you may consider using P2P marketplaces such as Paxful which allow you to trade directly with individuals while eliminating the middleman. Some software wallets such as Lobster allow you to trade seamlessly and anonymously. Exchanges are also great options, but just a handful give room for optional identity verification, hence you may want to choose these.

Overall, the methods itemized above let you buy Bitcoin seamlessly with your credit card.

What Happens If You Buy Bitcoin With a Credit Card?

Buying Bitcoin with a credit card means you’ll have to select a card and exchange that supports Bitcoin purchases and credit cards respectively. Even though the process is seamless, transactions aren’t instant.

The exchange will need to verify to validate that the transaction is real and no fraudulent traces are found.

How Long Does It Take to Buy Bitcoin With a Credit Card?

Since buying Bitcoin with a credit card is convenient, one will expect it to be instant. However, this doesn’t seem to be the case because the exchange must verify the transaction and ensure no scam is involved.

Why Won’t My Credit Card Work for Bitcoin?

There are several credit card processing companies in existence. If you plan to buy Bitcoin with one and notice it doesn’t work, it could be one of two things: The credit card doesn’t support Bitcoin purchase, or the exchange doesn’t support credit cards.

As an investor, research should be paramount. Before using a credit card, you should research to know whether it supports Bitcoin purchases. Also, choose an exchange that supports credit card payment.

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