Comparing credit cards and loans


When we find ourselves in a spot financial difficulty, where do we go to find the best solution? This is a question many of us face at some stage in our lives, and whether it’s looking for a credit card or a loan, there are so many options to compare in the market. It’s very confusing for a consumer to find the best product for your personal needs. This article provides a steer on the key differences between credit cards and loans.

Credit Cards

If you are looking for a credit card, make sure you request a ‘key facts’ sheet from each provider, so you compare and contrast their fees, interest rates and features. These should include:

When paying off your credit card, always try to budget and be disciplined to pay off the full amount owed each month if possible. By doing so, you will avoid additional interest charges and reap the benefits of any interest-free periods. As a result of this, you will pay off your debts faster, although you may only be able to pay off the monthly minimum repayments. Should this be the case, keep a lookout for a card with a lower interest rate and pay off more of the balance when possible. Try to avoid withdrawing cash on your card, as cash advances have no interest-free periods, and the interest rates can be very high. You are also likely to pay a fee when making using an ATM.

If you run up $500 on your credit card with typical terms with minimum repayments of 2.5% of the outstanding amount. You then make the decision to stop using that card, so you can pay off what you owe. Interest is charged at 16% per annum for the date of purchase (unless you pay the full balance off each month), and there are no additional fees on the account. By making only the minimum repayments, you’ll pay about $421 in interest on top of the $500 originally borrowed – or $921 in total which will take you around 5 years to pay off that card. By paying just $37.50 a month, you’ll pay off the balance within 15 months and pay only $46 in interest. That’s a saving of $375.

Loans

Should you be considering taking out a loan, always be aware of the following fact checklist:

Lenders should provide a comparison of all repayment options. Depending on the type of loan you choose, repayment options always be presented to the consumer. The comparison rate will include the interest rate or monthly payment amount, plus additional fees and charges. A loan with a lower interest rate but with higher fees and charges could actually be more expensive than an option with a higher interest rate.

As of 1st July 2013, new national interest rate caps were enforced, meaning providers could not charge an interest rate more than 48% in the interest of the loan. Additionally, there is a cap on costs, which depends on the type of credit provider you choose. However, there are some exemptions such as ADI’s (Authorised Deposit-taking Institutions). These providers don’t have caps on interest rates and costs. They fall under some banks, building societies and credit unions. Also not limited to continuing credit contracts like credit cards.

From 1st March 2013, credit contracts where the provider is not an ADI, the credit limit is less than $2,000 and the term is less than 15 days are now forbidden.

Legal information

Marketplace Finance Pty Ltd with ACN 608 607 227 and ACL 487316 is trading as Friendly Finance. Friendly Finance does not make finance or credit decisions and is not a provider. Friendly Finance helps customers find financial partners that meet their requirements.Financial partners may wish to obtain credit reports as part of the decision process. The line of credit available will vary depending on the financial provider. In order to help the government fight identity theft, the funding of terrorism and money laundering activities, providers may verify and record customer information. This website does not directly endorse a particular product and service.Any information on this website should be taken as opinion only.

Address: 903 level 9, 50 clarence st, sydney, nsw, 2000. Email: info@friendlyfinance.com.au

Disclaimer: Cash Loans Paid In 60 Minutes*
* As advertised - FriendlyFinance.com.au is not a lender or broker and does not advise or recommend any lender. We simply provide options based on the information you provide.
Once you are approved by an actual lender, your loan may be transferred straight into your bank account within 60 minutes of signing the contract during standard banking hours.
The same transfer times could apply on second and subsequent approved loans.
For loan amounts over $3,000 it usualy takes longer than 60 minutes

WARNING: Do you really need a loan today?*

It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.


Check your options before you borrow:

The Australian Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.*This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.