KNOW THE RULES - All about credit
Types of credit
Many different types of credit are available. To maximise the usefulness of credit, and minimise the interest cost, you should determine which ones are best suited to your needs.
Credit cards
- Let you borrow money from the card issuer on an ongoing basis.
- You can choose to either repay the amount you borrow in full each month, or repay only part, but be charged interest on the outstanding balance.
- Unpaid balances are carried over to the following month, together with an interest charge.
- Click on ‘How credit cards work’ in this section to learn more.
Charge cards
- Let you borrow money from the card issuer on an ongoing basis.
- You must repay the full amount you use each month.
- You should only put on your charge card what you can afford to repay in full each month.
- Useful for managing a monthly budget.
Store cards
- Credit cards provided by department stores or retailers.
- Check all details before signing as requirements and guidelines differ for each card.
- Generally more expensive than traditional credit cards.
- Can encourage loyalty to one store, discouraging you from shopping around.
Personal loans
- These loans are useful for buying one-off big-ticket items like a computer, a car or even a holiday as well as for consolidating multiple debts into one regular repayment.
- They have fixed monthly repayments over a set period of time.
- Helpful for budgeting as you have a regular repayment.
- Click on ‘Personal loans’ in this section to learn more.
‘Interest-free’ and ‘no repayment’ financing
- This type of credit is often offered by retailers, though the actual lender is often an independent finance company.
- The deal may sound generous, but unless you can pay the full balance before the interest-free period expires, high interest charges may apply to the unpaid balance.
- Always read the fine print before signing.
Line of credit loans
- Let you draw on an available amount of credit up to a pre-determined limit.
- Funds are accessed by cheque and/or ATM card.
- Interest is only payable on the funds drawn down.
- Generally lower interest rates than for personal loans or credit cards.
- Click on ‘Line of credit loans’ in this section to learn more.
Overdraft
- Lets you borrow money up to a pre-set limit from your bank account.
- The funds are often accessed by an ATM card or Debit card, through a cheque account or over the counter.
Mortgages
- Generally used to purchase property.
- Involve large sums of money and a longer repayment term – usually twenty years or more.
- The interest rate on these loans is generally the lowest of any type of credit.
Pay day loans
- Short term loans usually for small sums of just a few hundred dollars.
- The interest rates are extremely high, so they should be used with caution.
