How to Buy Bitcoin With a Credit Card?

How Can You Buy Cryptocurrency With a Credit Card?

Many people are used to just pulling out their credit cards to purchase anything from groceries and everyday items at the local supermarket to exquisite luxuries and trinkets online in this day and age. But when it comes to bitcoin (BTC) and other forms of cryptocurrencies, such transactions haven’t always been so easy. Trying to purchase any form of cryptocurrency with a credit card used to be incredibly difficult, if not outright impossible, for several reasons. The most critical of which being that many banks and credit unions that issue credit cards outright banned the practice of cryptocurrency purchasing. Additionally, those credit card issuers who have not prohibited the purchase of cryptocurrency often treat such transactions as cash advances and apply hefty fees and high accrued interest rates to them. And that’s not even mentioning the additional fees that are also added on for credit card processing.

That being said, times have begun to shift significantly since the concept of cryptocurrency was first introduced to the market. It’s now much easier to purchase them online through a simple credit card transaction. However, while this shift has made such processes easier, there are still several reasons that experts have put forth as to why credit cards still shouldn’t be used for cryptocurrency purchases. These reasons and several alternative purchasing methods will be discussed in detail later in this article, so please continue reading to learn more about these methods that are available to you.

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Related: Visa and PayPal are Making Waves by Embracing Cryptocurrency

How Can You Buy Cryptocurrency With a Credit Card?

The Bitcoin.com Wallet mobile app icon

Source: https://play.google.com/store/apps/details?id=com.bitcoin.mwallet&_branch_match_id=904798962489969767&utm_source=Homepage%20Android&utm_campaign=Website&utm_medium=Top%20section%20Android

Now, anyone can go onto any number of exchanges (or even directly onto Bitcoin.com) to buy various forms of cryptocurrency through a straightforward credit card transaction. For this process to work, you will first be required to download the free Bitcoin.com Wallet mobile app onto your smartphone via the Apple App Store or Google Play store. Please be aware, however, that several cryptocurrency wallets are currently available for download. Many of them work pretty well, but we recommend using the app developed explicitly by Bitcoin.com, whose icon should resemble the image above. You can start with a purchase of as little as $30 to buy cryptocurrency with low risk, but if you wish to spend $100 or more, you will need to go through a process of identity verification. Once your identity has been verified (don’t worry, they make it easy), you will be able to start making use of larger purchases.

Suppose you use your phone for these exchanges. In that case, the process is as simple as selecting the “Buy” button within the app and choosing between the types of cryptocurrencies you’d like to purchase, including Bitcoin, Bitcoin Cash, Ethereum, Binance Coin, Litecoin, Dash, and many more. Should you choose to make purchases online through your laptop or computer, you’ll be shown a box with the option to either buy or sell cryptocurrency. From there, you’ll select the type of cryptocurrency that you’d like to purchase, you’ll input what kind of currency you’d like to use, and how much of that currency you’d like to spend. You will then be informed of how much cryptocurrency you will receive by paying that amount.

For example, as of the day this article is being written, one can go onto Bitcoin.com, select the option to purchase bitcoin, and input that you would like to spend $200. Once that has been selected, the website will inform you that $200 is worth 0.0050 BTC, and that is the amount of bitcoin you will receive should you choose to go through and complete the purchase. If the transaction cannot be completed, you may need to reach out directly to your credit card provider and ask them about their policies regarding cryptocurrency purchases. If they say that such transactions aren’t allowed by their company, you’ll have to consider other methods for buying your bitcoin.

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The Cons of Bitcoin Purchases Through Credit Cards

As stated above, it was once much more difficult to try and purchase bitcoin and other types of cryptocurrencies through credit card transactions. While this is no longer the case to the degree it once was, many people still encounter several significant issues when attempting to buy any form of cryptocurrency with a credit card. Many experts have come forward to recommend against such transactions outright for several reasons.

Exchange Fees

Cryptocurrency exchanges will typically charge a fee for the use of their services in general but will also frequently charge additional fees for credit card processing. Usually, this fee is some percentage of the total transaction amount when a user exchanges a recognized currency for bitcoin or any other type of cryptocurrency. For example, the popular exchange Coinmama offers several different cryptocurrencies, including bitcoin. However, it requires that purchases be at least $60, and it then charges a transaction fee of 5.9%. An additional 5% fee is then added on for purchases made through a credit card. This fee means that for every $100 worth of cryptocurrency you purchase, you will be paying $10.90 worth of fees, leaving you with only $89.10 to actually spend on your desired crypto. If you buy this crypto as an investment, you need to earn a 12% return to break even on the transaction.

Cash Advance Penalties

Aside from the general exchange fees charged by crypto exchanges, a few other issues should be addressed. First, there is a high likelihood that, if your credit card issuer allows cryptocurrency purchases, they may likely consider such transactions as a type of cash advance, much like when one takes money out of an ATM. This is a significant downside for credit cardholders making these transactions for several reasons, including:

Higher interest rates 

Many credit card companies charge a significantly higher annual percentage rate for cash advances (or transactions considered cash advances) than they do for more traditional purchases.

Cash advance fees

Credit card companies tend to charge one-time fees when taking out a cash advance, typically ranging between 3% and 5% of the transaction amount. Meaning, if you took $200 out of an ATM or spent that amount on the purchase of cryptocurrency, you would be charged a fee of between $6 to $10. This amount would be added to your overall account balance, resulting in you paying more than you may have initially intended.

Lower credit limits

Many credit cards have a separate credit limit for cash advances, and these tend to be much lower than overall credit limits that apply to all types of transactions. Unfortunately, this means that while you could purchase a new TV, gaming consoles, and other products with a credit card, you may not be allowed to buy cryptocurrency for the same amount.

No grace periods

Suppose you can fully pay off your credit card balance every month. In that case, your credit card company will provide you with a grace period of at least 20 days to complete paying off your purchase before they start charging you an additional interest on the purchase. However, cash advances are not given such a grace period and will instead accrue interest from day one.

No credit card rewards

Several credit card companies offer rewards and benefits to card users. These tend to include perks like air travel miles, cash back on payments and purchases, discounts, gift cards, insurance benefits on purchasing a rental car, and more. But if your credit card issuer considers cryptocurrency purchases to be a cash equivalent, the transactions are not likely to qualify you for any rewards. Additionally, they won’t likely qualify towards your required spending amount to help you potentially earn any sign-up bonus.

Additional Issues to Consider

Some other issues that credit card holders need to consider before attempting to purchase cryptocurrency through card transactions include:

Scams

People must be cautious when using a credit card to purchase any cryptocurrency, especially when selecting a reputable exchange to trade on. If the exchange that you choose isn’t secure, then there is a good chance that personal information (including credit card numbers) could easily be stolen and used without your consent as part of an online scam.

Foreign exchange fees

If the exchange that you are using to purchase cryptocurrency is outside of the United States, then foreign exchange fees may end up being charged by your credit card company. The cost will vary depending on the card issuer, but they tend to be about 3% of the total transaction.

Credit utilization

Choosing to make large purchases of cryptocurrency through a credit card can quickly use up the credit available to you. This can cause serious issues with the stability of your overall credit score, which can lead to several other problems over time, including inflated prices, higher mortgage and insurance rates, and rejections on requests for future loans or credit card applications.

Debt

Going into debt by using credit cards to purchase things beyond your means is always a very unwise decision, but going into debt to buy cryptocurrency is even more of a gamble. It will leave you paying massive amounts of interest on a volatile investment that has the potential to bring you little to nothing in the way of returns if you are not careful.

Related: How Can Cryptocurrency Serve the Unbanked?

Popular Exchange Alternatives to Credit Cards for Bitcoin Purchases

Two gold bitcoins on top of a laptop keyboard, with analytical cryptocurrency data displayed on the screen.

Many methods can be used to allow people to purchase cryptocurrency without using a credit card. While several are available and could be listed here, this article would like to focus on two of the most prominent and frequently used methods. These include:

Coinbase USD Wallet

Coinbase does not accept transactions through the use of U.S. credit cards. Instead, users can deposit money into their Coinbase USD wallet using free bank (ACH) transfers at a 1.49% fee or through a debit card with a 3.99% fee. However, Coinbase does also charge a spread of approximately 0.5% for the sale and purchasing of all cryptocurrencies. Additionally, these online wallets provided by Coinbase are not fully insured by the Federal Deposit Insurance Corporation (FDIC). So while this is a relatively common method for purchasing cryptocurrency, individuals will need to determine whether or not the fees and potential risks are worth using a Coinbase USD Wallet. 

Related: What Businesses Are Accepting Cryptocurrencies?

PayPal and Cash App

Similar to Coinbase, money can be put into either PayPal or Cash App accounts and then used to purchase cryptocurrencies on exchanges that accept transactions from them. However, it must be noted that Cash App does not provide any FDIC insurance, and while PayPal does have some pass-through FDIC insurance, there are a few catches. For instance, the insurance only covers up to $250,000 per depositor per account in many cases. Additionally, to qualify for this insurance, one must have a PayPal Cash Plus account while also meeting several other requirements. Such requirements typically include:

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  • Owning and using a PayPal Cash Card debit card
  • Choosing to enroll in direct deposits
  • Several others

Do you want to find out more information on the potential costs and rewards that come along with the use of cryptocurrencies? Take a look at unBanked and their selection of top-quality education articles to learn more.

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