cash advance
A cash advance is withdrawing cash against your credit card, and it is one of the most expensive ways to borrow money that exists.
In plain English
It feels like using your own card. It is not. It is taking a loan on the worst terms available to an ordinary person.
A cash advance is drawing cash against your credit limit. And it is priced quite differently from a purchase, in three ways that the machine will not mention.
There is usually an immediate fee, taken the moment you withdraw. The interest rate is typically higher than the rate on purchases. And crucially, there is no grace period. Interest begins accumulating from the instant the cash leaves the machine, not at the end of the month.
Which means that even if you repay in full on your statement date, as a careful person would, you have still paid a fee and interest. The one habit that makes credit cards free does not work here.
This is why cash advances are the last resort and are used most by the people who can least afford them, at the moment they can least afford anything.
If you find yourself needing one, the cash advance is not your problem. It is the symptom, and the actual problem is that no emergency fund exists behind it.
You withdraw ₦50,000 on your credit card. A fee is charged immediately, and interest at a higher rate starts accumulating that day rather than at the end of the month. Repaying in full on time does not save you. It never could.
Questions people ask
Why is a cash advance more expensive than a purchase?
There is usually an upfront fee, a higher rate, and no interest free period. Interest begins on the day of withdrawal.
Does paying in full save me?
No. Unlike purchases, interest accrues from the moment of withdrawal, so even a diligent repayment leaves you having paid a fee and interest.
What should I do instead?
Build an emergency fund, which exists precisely so this decision never has to be made. In a genuine crisis, almost any other borrowing is cheaper.
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