DEFINITION of Credit Card Funding
Credit card funding is the ability to electronically fund a new account, business, or other venture by using a credit card. Credit card funding allows an individual or business to use a readily available source of funds, though the funds are being borrowed and, thus, carry an interest rate.
BREAKING DOWN Credit Card Funding
Small businesses may find it difficult to obtain the startup capital to purchase inventory, make a rent deposit, or any other functions that require cash. If the business owner does not have savings on hand and is unable to acquire a loan, credit card funding may be an option. This is especially the case when a minimum amount of funding is required in order to keep an account open.
Investors are a group that also use their credit cards to place initial funds in an account. This is often a more popular option in Forex accounts, though regulations may restrict or ban the use of credit cards to fund accounts involved with more high-risk investments, such as derivatives and currencies.
How Credit Card Funding Can Be Used to Establish Other Accounts
Certain banks may allow credit card funding to be used when opening a bank account. This might be done for the purpose of meeting minimum balance requirements to establish a bank account. It could also be a way for the credit card holder to meet spending minimums for to earn a signup bonus or other rewards for their cards. Furthermore, this might be done to earn simultaneous bonuses from both accounts, which could include cash back for fulfilling the requirements during the signup phase. Such a strategy typically calls for a plan to also pay off the credit card balance in order to avoid paying interest fees and other costs.
Some institutions that accept some forms of electronic funding may not accept credit card funding, but may accept funding via debit card. This is because the funds from a debit card will only be transferred if they are present in the cardholders account, meaning that the cardholder is not depositing borrowed funds that require him or her to pay interest. For risky ventures, such as investing and speculation, the use of credit cards is restricted or banned because the cardholder may lose the deposited funds and be unable to pay back.
Credit card holders should review their card agreement to determine whether the card company considers credit card funding to be a cash advance. Companies often charge different interest rates on borrowed funds depending on the type of transaction, with purchase rates typically being lower than the interest charged on balance transfers and cash advances.