How to Apply for a Credit Card in Australia

people trying to apply for a credit card

Are you looking for some extra finance for emergencies, for a big purchase, or are you wanting protection from online fraud? Then a credit card might be just what you’re after! But how can you get a credit card? Tippla has put together a quick and easy guide on how to apply for a credit card in Australia.

people trying to apply for a credit card

What is a credit card?

A credit card is a payment card that is provided by banks and similar financial institutions to allow the cardholder to pay a merchant for goods and services using a line of credit. 

So what does this mean? Basically, the money spent on a credit card isn’t the money that you have earned from your job. Instead, it’s a revolving line of credit that you need to repay each month, or at the very least, make the minimum repayments if you want to avoid late fees.

Am I eligible for a credit card?

Who can receive a credit card? This will vary from card to card, and it depends exactly what you’re after. But there are a few general requirements that are applicable for most cards. 

These requirements are:

  • You must be over the age of 18;
  • An Australian citizen or permanent resident and hold a valid visa;
  • Not be going through bankruptcy;
  • Have a decent credit score;
  • Have a stable job and steady income that will allow you to repay the maximum credit card limit.

When it comes to meeting the requirements of a credit card, the main thing the credit provider is concerned with is whether you have the ability to repay your credit card balance every month.

Can you get a credit card with no credit score?

One of the general requirements for a credit card is to have a good credit score. This shows you are responsible with your finances and can make your repayments on time. But what if you don’t have a credit card? Or what if you have a bad credit score? Can you still get a credit card?

The short answer is yes, but your options will be more limited than if you had a good credit score. The main thing banks and other credit card providers are concerned about is whether you can repay your balance. You can do this by showing them you are responsible with your money.

This could mean, highlighting that you have a steady income, a stable job and that you can save consistently. Furthermore, One thing you could do before applying for a credit card is to build your credit history or improve your credit score so that you have a lot more options at your fingertips.

Your options

If that isn’t an option, there are still things you can do. If you’re studying at university, TAFE, VET or working in an apprenticeship, then you may be eligible for a student credit card. You can apply for these types of credit cards without needing a credit score. However, you need to be a student to apply for this kind of credit card, and it might not offer the best terms and conditions compared to other types of credit cards

Alternatively, there are such things as secured credit cards. Similar to a secured personal loan, a secured credit card is where your credit card is “secured” AKA, guaranteed to be paid. This is achieved by having a cash deposit in your bank account that’s the same as your credit limit.

You can also call your current bank and explain your situation. If you have been a customer with them for a while, they might be able to offer you a credit card based on your personal circumstances.

Can you get a credit card on Centrelink?

If you currently receive financial assistance from the government, are you eligible for a credit card? Yes, being on Centrelink doesn’t mean you can’t get a credit card. However, your options might be more limited.

Before applying for a credit card, it’s important to make sure you understand and meet the eligibility requirements. You can compare your options on numerous comparison websites, however, they might not cover the entire market. You can also contact your bank to see if they have any options that meet your needs.

Generally speaking, if you can meet the common requirements – age, Australian citizen or resident, minimum income and good credit history, then there should be a credit card out there for you, regardless of whether you receive help from Centrelink.

Where can you apply for a credit card?

When you’ve determined your eligibility, the next question is where can you get a credit card? Nowadays, you can get credit cards from many different companies – and not all of them are financial institutions. It’s no longer just banks that have a monopoly.

Here is an overview of who offer credit cards in Australia:

  • Australian and international banks;
  • Financial institutions, 
  • Airlines, such as Qantas and Virgin;
  • Supermarket chains, such as Woolworths and Coles;
  • eCommerce companies like Kogan;
  • Department stores, including David Jones.

How to apply for a credit card in Australia

Here are the simple steps you can take to apply.

1. Do your research

Before you apply for a credit card, one of the best things you can do is research all of your options. Check if you are eligible for a credit card, and discover which credit card is best for you. Could you benefit from a rewards card, or would a card without an annual fee be more worth your while?

Here are some questions you can ask yourself when trying to determine whether a credit card is right for you, and if so, what type of card would best suit your needs:

  • What will I be using the credit card for – day to day spending, to pay for bills, or to make big purchases every so often;
  • Will I be able to pay off my credit card in full each month?
  • Am I, at times, forgetful and not the best at sticking to a budget and therefore, likely to carry over a balance each month?
  • Do I travel a lot?
  • Do I exclusively do my grocery shopping at one brand – like Coles or Woolworths?
  • Do I need a credit card, and can I afford it? Do I already have a lot of debt?
  • Will a credit card help or harm my credit score?

2. Contact the company you want to apply with

Every time you make an application for credit the company that you apply with will check your credit score and report unless you go with a no-credit-check lender. When a lender checks your credit report, it registers as a hard enquiry on your report, and it harms your credit score. 

The hard enquiry will be registered on your credit file regardless of whether you’re approved for the credit or not. Because of this, another thing you can do is when you’ve made a decision on which card you want and where you want to apply, you can contact the company directly.

Why would you do this? Because you can clarify with them whether you meet the eligibility criteria. They probably won’t be able to tell you whether you’ll be approved or rejected without you making the application, but they might be able to give you a better idea. Therefore, when you make the application, you can be more secure in the fact that you will be approved, and keep the impact on your credit score to a minimum.

3. Submit your application

Once you have done your research, and you’re sure you meet all of the eligibility requirements, you can then submit your application. Most companies will allow you to apply online. These forms generally don’t take very long.

Alternatively, if you’re applying for a credit card with a bank, you can go to your local branch and submit your application in person.

Summing it up

 We’ve thrown a lot of information at you, so let’s sum it up. Here’s how to apply for a credit card in three easy steps:

  1. Do your research – identify why you need a credit card and which type of card would be best for you. Once you have determined this, you can then find which company can offer you the best deal;
  2. Make sure you meet the eligibility criteria – when you’ve found which card you want, take a look at the eligibility criteria to make sure you meet the company’s standards. If you’re not sure, you can contact them to try and get a better idea;
  3. Make your application – the easiest way is to apply online, however, if you’re applying with a bank, then you can go into your local branch if you’d prefer to do it in person.

Bad Credit Loans | What Are They & How To Apply for Them

bad credit loans

If you have a below-average credit score but you still want to take out a personal loan, what are your options? There is such a thing as bad credit loans. Tippla has provided a breakdown of bad credit loans below – what are they, the pros and cons of poor credit loans and how to apply for them.

bad credit loans

What are bad credit loans?

As the name suggests, a bad credit loan is a loan you can take out when you have a “bad” credit score, also known as below average. The point of a bad credit personal loan is to allow people who don’t have a stellar credit history the opportunity to still access finance. 

This can be helpful for people who need a loan but don’t have a great credit history and don’t have the time to improve their credit score.

Why does my credit score matter when applying for a loan?

Your credit score is a number ranging from 0 – 1,200 and it acts as an indicator of how reliable of a borrower you are. Your credit score is based on your recent credit history – your credit applications, your repayment history, the number of credit accounts you have, and any negative entries if applicable (defaults, bankruptcies, court judgements, etc).

Because of this, your credit score gives credit providers a helpful overview of how you have managed credit in the past. Lenders and banks use your credit score to judge how much of a risk you pose to them when you apply for some kind of credit, whether it be a loan, credit card, mortgage and more.

The higher your credit score, the more reliable of a borrower you are perceived to be. This can go a long way when it comes to applying for credit. This is because you’re more likely to be approved for a loan if you have a good credit score and positive credit history.

On the reverse side, if you have a bad credit score and a bad credit history, then your loan application might be rejected and credit because lenders will see you as too much of a risk.

What is a bad credit score?

Your credit score will fall somewhere on a five-point scale: excellent, very good, good, average and below average. Below average is also referred to as a “bad” credit score. 

Where your credit score falls will depend on the Credit Reporting Agency (CRA). In Australia, there are three CRAs – Equifax, Experian and illion. Each of these three agencies collects your credit information and generates your credit scores and reports. That means you have not one, but three credit scores and reports.

Equifax measures its credit scores on a scale from 0-1,200, whereas Experian and illion use a scale ranging from 0 – 1,000. Here’s how Equifax and Experian categorise their credit scores.

good credit score

Source: Equifax and Experian

The pros and cons of bad credit loans

Are bad credit loans a good or a bad thing? Well, there are arguments for both sides. So let’s take a look at the pros and cons of bad credit loans.

Pros

1. Access to finance

One of the good things about bad credit loans is that it provides people who don’t have the best credit history with access to finance. Generally, the turnaround for these types of loans is quite fast, which can be helpful if you need cash quickly.

2. Can help you rebuild your credit

If you take out a loan, it can be your opportunity to rebuild your credit history. If you can make all of your repayments on time, and you can pay off the loan in full, these actions can both positively contribute to your credit score.

3. Extended repayment period

In Australia, you can get a range of bad credit loans, with varying repayment periods. This means you don’t have to pay back the amount you borrowed straight away, you can space out your repayments into affordable instalments.

Cons

1. High-interest rates

Lenders are taking on more of a risk by lending to people with a bad credit score. Because of this, they offset their losses with high-interest rates. Depending on where you go, you could be facing interest rates of up to 30% per annum in the most extreme cases. 

The amount you pay in interest can add up over time, and it can hurt your wallet. You should make sure you can afford the repayments, including any interest and fees and charges, before taking on a loan.

2. Fees

Not only do bad credit loans come with higher interest rates, but they can also come with more fees. Again, this is a way for lenders to offset the risk of lending to someone with a bad credit score. 

Just like interest, the amount you pay in fees can add up quickly if you’re not careful. That’s why it’s important to read the terms and conditions before taking on a loan.

3. Lower borrowing limits

Typically, if you have bad credit, then you might not be able to borrow as much as you’d like. This will differ from lender to lender, and you might find some that are willing to lend higher amounts, but again, you’ll likely be paying for this in interest and fees.

4. Collateral requirements

Some lenders may require you to offer some kind of collateral to take out a loan. If you default on the loan, then you could be at risk of losing your collateral.

Who offers bad credit loans?

Many lenders offer loans for people with bad credit. A simple google search for bad credit loans will produce pages of results of lenders who are willing to provide loans.

Typically speaking, you are more likely to find non-bank lenders who are willing to take on the added risk of lending to someone with bad credit. 

How to apply for bad credit loans

Before applying for a loan, you should make sure you meet the criteria of the loan. In Australia, you will typically need to meet the following criteria:

  1. Be at least 18 years old;
  2. Be an Australian or New Zealand citizen (or Australian permanent resident/have an eligible Visa);
  3. Live in Australia;
  4. Be employed and receive a regular income.

You can apply for bad credit loans similar to how you would apply for any other loan, however, it is a good idea to do your research before applying. You should try and compare the different options out there, and see which lender can offer you the best conditions, such as interest rates and associated fees.

Bad credit loans: the verdict

To sum it all up, there are pros and cons to bad credit loans. If you are unsure if this type of loan is right for you, then you can reach out for free financial advice with a financial counsellor from the National Debt Helpline.

Can You Get a Personal Loan with No Credit Score?

Get a Personal Loan with No Credit Score

Are you looking for a personal loan, but you’re worried about not having a credit score? Can you even get a personal loan with no credit score? Tippla has put together this helpful guide to answer your questions.

Get a Personal Loan with No Credit Score

Why does a credit score matter when applying for a personal loan?

Your credit score is a number ranging from 0 – 1,200. This number represents your creditworthiness, AKA, how reliable of a borrower you are. The higher your score, the more reliable you are perceived to be. If you have a low score, then you are deemed as a higher risk.

Your credit score is viewed by credit providers, such as lenders, banks, utility companies and more, every time you apply for some kind of credit. This could be a loan, credit card, phone plan and more.

When you apply for a personal loan, your credit score is one of the many ingredients lenders and credit providers use to determine how risky of a borrower you are. Because of this, your credit score can affect your loan application.

Whilst your credit score isn’t the only factor lenders consider, it can strengthen, or if you have a below-average or no credit score, weaken your loan application. That’s why it’s a good idea to know what your credit score is, and how to improve it.

What does having no credit history mean?

If you don’t have a credit score at all, it means one of the measures lenders use to assess your application is missing. This means they have less information to make an informed decision.

If you don’t have a credit score, this could be a red flag for a lender. Because of this, you might only be offered loans with higher interest rates or your application could be rejected entirely. Therefore, having a good credit score or higher can improve your chances of being approved for a personal loan.

What do lenders look at when applying for a personal loan?

Your credit score is only one of the factors that lenders and banks use to assess your loan application. Some of the other things they also look at include your salary, spending habits, length of employment, government benefits and more.

Here are some of the minimum requirements for applying for a personal loan:

  • Be 18 years or older;
  • Be an Australian or New Zealand citizen, or have Australian residency or valid visa;
  • Live in Australia;
  • Meet the minimum income requirements;
  • Not be going through bankruptcy;
  • Have employment or receive a regular income;
  • Have a good credit rating.

What are my options to get a personal loan with no credit score?

If you don’t have a credit score, it doesn’t mean that you can’t get a personal loan. However, it will reduce your options. Furthermore, some loan types and amounts could be completely out of your reach if you don’t have a credit score.

This means you might not be able to get the type of loan or borrow the total amount that you want because you don’t have a credit score. Nonetheless, there are still avenues you can explore to get a personal loan.

Here are some of the options available for you to get a personal loan with no credit score.

No credit check personal loans 

In Australia, you can get a personal loan without the lender performing a credit check. This could be an option if you don’t have a credit history However, no credit check personal loans are very difficult to find, and the options are limited. 

For no credit check personal loans instead of looking at your credit history, lenders will instead look at your income, employment status, existing debts and other criteria when looking at your loan application. 

Because these loans are riskier for the lender, no credit check personal loans will often come with higher interest rates and fees. 

Secured personal loans

When it comes to personal loans, there are two main types – unsecured and secured personal loans. A secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security, which is where the name “secured” personal loans comes from. If you default on your loan, then your asset could be repossessed as a way to cover your repayments.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

If you don’t have a credit score, taking on a secured personal loan could be an option for you. However, just because secured personal loans on average can have lower interest rates, if you have no credit history at all, you still might be charged higher interest rates than someone with a good credit score, regardless of whether the loan is secured or not.

How to build a credit history from scratch

Whilst you can get a personal loan without a credit score, it’s not necessarily your best option. So how can you build a credit history from scratch? Here are a few things you can do.

Open a bank account

If you’re trying to build your credit history, a good starting point is to open a bank account for yourself. Having a bank account can help you apply for credit later down the track. It is also a good way of tracking your spending, which is something that lenders like to see when you apply for a loan.

Although opening a bank account won’t directly impact your credit score, it could be a good starting point.

Add your name to your utilities

If you live out of home and have utilities, such as water, gas or electricity, then it could be a good time to add your name to your utility bills. Your utilities are a form of credit. If your name is on the account, then each payment you make could go towards building your credit score.

Apply for a credit card

Another way you can build your credit history is by applying for a credit card. Whilst your choices are more limited if you don’t have a credit score, there are still options out there.

For example, you could get a student credit card or a secured credit card. Alternatively, if you have had a bank account with a bank for a while, they might be willing to provide you with a credit card. 

Proactively provide information to credit bureaus

Credit bureaus base your credit reports and scores on the information provided to them by the companies you have credit with. If you don’t have any credit, then the bureaus likely won’t have any of your information.

One way you can change this is by providing your information directly to the credit bureaus. You could, for example, send them a document to prove your identity and address. If you move house, it’s important that you update your address, so you don’t end up with multiple files with different credit information.

How long will it take to build a credit history?

Unfortunately, you can’t build a good credit history overnight. As the saying goes, good things take time. If you don’t have any credit history, the good thing is that you don’t have to wait for negative entries to be removed from your credit report. However, it will still take time for your good credit behaviour to reflect on your credit score.

According to Experian, one of Australia’s largest credit bureaus, it takes between 3 and 6 months until they have collected enough data to calculate a score for you.

What’s the best credit score for a personal loan?

Whilst there is no “perfect” credit score, if you are wanting to apply for a personal loan, you should be aiming for a credit score that is either good or higher. The better your credit score, the more options you will have.

good credit score

Source: Equifax and Experian

Bad credit score? Here’s how to improve your credit score

What if you have a below-average credit score? Similar to having no credit score at all, this can limit your finance options, and you will likely be offered loans with higher interest rates, fees and less desirable lending conditions.

Here are 3 easy ways you can improve your credit score.

Space out your credit applications

When you apply for a loan, the company you apply with will check your credit report. This is known as a hard enquiry and will lower your credit score. Because of this, it is a good idea to limit your credit applications to protect your credit score. 

You can do your research, compare your options, and apply for loans where you meet all the criteria. This could limit the number of applications you need to make and protect your credit score.

Make your repayments on time

Your repayment history contributes to your credit score. If you miss your credit repayments or default on one of your bills, then this could appear on your credit report and drag down your credit score. With this in mind, it’s important to ensure you always make your repayments on time. 

How can you do this? You could set up automatic payments, budget so you have enough money in your account to afford the repayments, and don’t take on more debt than you can afford to repay.

Check your credit reports frequently

Frequently checking our credit reports can allow you to identify a mistake on your credit report quickly. 1 in 5 credit reports has some kind of mistake on it. Sometimes this mistake can be harming your credit score.

If you are frequently checking your credit report, you will be able to identify mistakes early on and have them removed. This can protect your credit score from being dragged down by inaccurate information.

Should You Pay Off Your Credit Card or Personal Loan First?

Pay Off Your Credit Card or Personal Loan First

Do you currently have credit card debt as well as a personal loan? You might be wondering what’s the right course of action: should you pay off your credit card or personal loan first? Tippla has put together this helpful guide to allow you to make an informed decision.

Pay Off Your Credit Card or Personal Loan First

Learning the differences between debt

When you’re trying to decide which debt you should pay off first, it’s important to understand the differences between debt. Your credit card debt and personal loan will likely have different interest rates, terms and conditions.

With this in mind, it’s important to understand the differences between the two.

Interest rates

When it comes to deciding what debt to pay off first, it’s a good idea to compare the interest rates between the two. Typically, credit cards charge higher interest rates than personal loans do.

credit card interest vs personal loan interest

Annual Percentage Rate

The Annual Percentage Rate (APR) is the total amount of interest you will pay each year, before compound interest. The APR is represented as a percentage of the balance. The APR doesn’t include fees, such as account opening and maintenance fees.

For a credit card, say you have an APR of 10%, you will pay approximately $100 annually for each $1,000 borrowed. However, credit cards can have more than one APR. They can have one for purchases, one for cash advances and one that is charged when you make late payments.

Fees

Both credit cards and personal loans have fees associated with them. When considering which debt to pay off first, you should also consider the different fees you could be charged if you don’t pay off your debt.

Credit card fees

For credit cards, the most common fees include:

  • Annual fees – the majority of credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
  • Interest – You will be charged interest when you carry a balance, ie. when you don’t pay off your credit card debt for the month. The amount of interest you’ll be charged will depend on your card.
  • Cash advance fee – When it comes to credit cards, a cash advance is when you withdraw money from an ATM with your credit card or buy foreign currency. When you do this you will generally be charged a cash advance fee.
  • Late payment fee – At the end of each month you’ll receive your bill for how much you’ve spent on your credit card. If you don’t pay at least the minimum amount by the due date you’ll likely be charged a late payment fee.
  • International transaction fee – If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee. 

Personal loan fees

For personal loans, the most common fees include:

  • Establishment fees This fee is charged when you take out a personal loan. It is charged to the borrower to cover the establishment of the loan.
  • Ongoing monthly fees Some lenders might charge ongoing monthly fees, such as account management fees. 
  • Late payment fees Similar to credit cards, if you miss a loan payment, then you could be charged a late payment fee.
  • Early repayment fee Some personal loans don’t allow you to repay them earlier than the set term. This is because, if you pay off your loan earlier, then you save money in interest. To offset this potential loss, lenders might charge an early repayment fee.

Comparison rate

When you look for personal loans, you will likely see two rates attached to the loan – the interest rate and the comparison rate. The comparison rate is the combination of the interest rate and most of the fees and charges that you will incur if you take on this loan. The comparison rate is a more accurate representation of how much extra you’ll be paying on top of the loan.

How to pay off your debt

When it comes to paying off your debt, there are two main methods people tend to use. These are the snowball and the avalanche system. Let’s take a look at them both.

Snowball system 

The snowball system is when you organise all of your debts from the largest to the smallest amount. Once you have organised your debts like this, the snowball method dictates that you make the minimum repayments for all of your larger debts, and focus your attention on your smallest debt.

As part of the snowball method, you aim to pay off your smallest debt as quickly and comfortably as possible. To achieve this, you could pay more than the minimum amount. If you have spare cash, then you could put it straight into repaying this loan.

Once your smallest debt is repaid, then you will move onto the second smallest debt. This cycle would continue until your largest debt is paid off.

Avalanche system 

Similar to the snowball system, you approach the avalanche system by organising all of your debts. However, with this method, you rank them from the highest interest rate to the lowest. 

Once you have ranked your debts, the avalanche method dictates that you make the minimum repayments towards your debts with the lowest interest rate, and increase the amount you pay for your highest-interest debt. 

This method is particularly beneficial if you want to save money because paying off interest can add up quickly.

You could also try debt consolidation to get on top of your credit card debt and personal loan.

Should You Pay Off Your Credit Card or Personal Loan First?

Let’s sum up all of the information and points we’ve discussed in this article. Should you pay off your credit card or personal loan first? Here are the main things you should consider:

  1. The interest rate – which one is costing you the most in interest?
  2. Fees – which one is costing you the most in fees. Do the fees outweigh the interest you are paying?
  3. What can you afford to pay off?
  4. Which method best suits your lifestyle – the snowball or avalanche method?

Most publications recommend that you pay off the debt which is charging you the most in interest. However, this might not be the best approach for every situation. If you are unsure of what’s the best course of action for you contact a free financial counsellor. They can provide you with advice based on your circumstances.

What’s The Difference Between Visa and Mastercard?

difference between visa and mastercard

Visa and Mastercard are household names, recognised across the world. But do you know what’s the difference between Visa and Mastercard? If you don’t, then be sure to read on, we’ve got the answers you seek!

difference between visa and mastercard

What are Visa and Mastercard?

Visa and Mastercard are both financial services companies that facilitate electronic payments across the world. They’re one of the big four companies that dominate the industry, joined by American Express and Discover.

Both Visa and Mastercard don’t provide physical cards nor do they extend credit to individuals, instead, they have partnered with a range of banks and financial institutions to offer their services. The two companies provide the largest range of products spanning credit, debit and prepaid options.

So what does this mean? Because the two companies are just digital payment platforms, they have minimal influence over the card products offered with their logo on them. For example, they don’t determine the interest consumers are charges, credit card fees, rewards points, and other particulars of the card. These are determined by the banks and financial institutions offering these cards.

About Visa

Based in America, Visa Inc. (NYSE: V) facilitates electronic funds transfers throughout the world. This is most commonly achieved via Visa-branded credit, debit and prepaid cards.

Because Visa doesn’t provide the actual cards, they don’t make money on the interest and fees connected to their cards. Instead, they make the bulk of their profit from charging banks and financial institutions a fee for using their payment network.

About Mastercard

Mastercard Inc. (NYSE: MA) is also an American-based company. It is the second-largest payment network, behind Visa. The company’s primary source of revenue comes from the fees it charges.

As is the case with Visa, Mastercard makes the bulk of its money from charging its clients a fee to use its electronic payment network. The company doesn’t control the fees and interest associated with its cards.

What’s the situation in Australia?

Like most countries, Visa and Mastercard dominate the electronic payments market in Australia. According to Statista.com, in June 2020, the two companies were responsible for 84.7% of the value of all Australian credit card payments. Furthermore, over the past five years, they have continued to increase their market share. 

visa and mastercard market share

Credit cards in Australia

Although Visa and Mastercard dominate the electronic payments market in Australia, what does that market actually look like? According to Finder, there were 13,432,262 credit cards in circulation as of March 2021. Together, these cards netted a national debt accruing interest of $20.5 billion.

As for debit cards, for the same period, there were 35,279,958 in circulation. The average debit card purchase was $46, and on average, debit card users made 23 purchases per month.

What’s the difference between Visa and Mastercard?

So now you know what the two companies are and their presence in Australia, let’s get stuck into discovering what’s the difference between Visa and Mastercard.

The main difference between the two brands is the payment network that the company operates on. Visa and Mastercard both have their own separate payment networks. Visa cards won’t work on Mastercard’s payment network. The same goes for the other way around.

Aside from this main difference, there aren’t many other variations between the two payment networks, especially from a consumer’s perspective. Any other differences come from the specific card you have. 

Because both companies partner with a range of banks, not all Mastercard cards are the same, nor are all Visa cards the same. They vary depending on the card issuer. Therefore, you might find differences between the types of rewards offered, the interest rates of individual cards, and the specific terms and conditions. 

Alternatives to Visa and Mastercard

Even though Visa and Mastercard clearly lead the pack when it comes to electronic payments, there are two other large players in the market – American Express and Diners Club. Let’s jump in to see how these alternatives are different and what benefits they might offer.

American Express

Similar to Visa and Mastercard, American Express (commonly referred to as Amex) operates its own card network where it processes electronic payments. Unlike its two largest competitors, American Express doesn’t just process payments, it also issues credit and charge cards. Furthermore, American Express processes its own cards, as well as cards from other issuers on its card network.

What are the perks of American Express? Generally speaking, Amex offers better rewards than the other two companies. These range from frequent flyer points, membership rewards, dining perks and more. This is one of the main appeals of American Express cards.

The downsides of Amex is that they are known for charging higher credit card processing fees. Because of this, some merchants don’t accept American Express. Therefore, as a consumer, there are fewer places where you can use your Amex card.

Diners Club

Similar to American Express, Diners Club isn’t just a payment system, it also issues cards directly to the consumer. Furthermore, the company also finances payments and processes the transfers. Visa and Mastercard make most of their money from charging banks and financial institutions a fee for using their payment networks, Diners Club makes most of its money through the interest charged and fees.

What are the perks of a Diners club? Similar to Amex, the card offers different rewards than Visa and Mastercard. If these benefits align with your lifestyle, ie. If you travel a lot for work, then a Diners Club card could be beneficial for you.

The benefits include free airport lounge access, travel insurance and purchase protection, retail perks, and because the company has partnered with Mastercard to improve its accessibility, users can also access Mastercard perks. 

This means, unlike American Express, Diners Club is accepted everywhere that Mastercard is accepted. Nonetheless, like Amex, Diners Clubs cards generally charge higher interest rates, as this is one of their biggest sources of revenue.

The verdict: what’s the difference between Visa and Mastercard?

To sum it up, what’s the difference between Visa and Mastercard? Overall, there is very little difference between the two. They both serve an identical purpose, and both have a large coverage of the global payments network.

From a consumer’s perspective, there isn’t any notable difference. The real variance comes from the individual cards but those differences are dictated by the card issuer, ie. the bank, not Visa or Mastercard themselves.

What Are The Different Types of Credit Cards?

different types of credit cards

With so many options out there on the market, Tippla has put together a helpful guide on the different types of credit cards.

different types of credit cards

What is a credit card?

A credit card is a revolving line of credit that allows you to purchase goods and services. There are many similarities between a credit card and a loan – you have a set limit you can spend, and you need to pay it back. 

Unlike a loan, the credit limit refreshes each month, and you need to repay the amount each month. If you want to avoid fees and interest, you’ll have to pay back the full amount each month.

Why choose a credit card?

There are several reasons why you might opt for a credit card. Here are five reasons:

1. Flexibility

Because your credit limit refreshes each month, that means you can have access to thousands of dollars each month. This can come in handy if you have unexpected expenses, want to make a big purchase, or use it for your daily spending.

However, it is worth remembering that whatever you spend, you have to pay back. Your credit card limit typically refreshes each month.

2. Building a credit history

Taking on a credit card can allow you to build a positive credit history. If you demonstrate each month that you can use your credit card effectively, and meet your repayments consistently, then this will look good on your credit report. 

However, if you allow your credit card debt to get out of control, then it could have the opposite effect. If you miss your repayments, then this will be displayed as a default on your credit report. Defaults can seriously harm your credit score.

3. Rewards

There are many rewards associated with credit cards. When you spend money, you earn points, which can be redeemed for a range of items – frequent flyer points, cashback, or retail perks, the list goes on and on. If you fly a lot for work, then a rewards credit card might provide a nice bonus. 

However, it’s important to point out that rewards cards often come with higher interest rates and fees. It’s important to weigh the pros and cons to see whether you will get a benefit from a rewards card.

4. Purchase protection

Many credit cards come with purchase protection. This can come in handy if you lose or damage a recent purchase. Typically, you can claim your lost or damaged item on your card’s insurance within 90 days from purchase.

5. Tracking your expenses

You can easily track your expenses when using a credit card. This can be particularly helpful for budgeting and trying to cut down on your monthly spending. With most credit cards, you can easily track your spending through your internet banking or monthly statements. Some banks will even sort your expenses into categories, such as utilities, groceries, eating out, and similar groups.

Different types of credit cards

Now you know some of the reasons why you might want to get a credit card, let’s dive into the different types of credit cards.

Low-interest credit cards A low-interest credit card is a credit card that offers a lower interest rate than normal, which is typically 20%. Low-interest rate credit cards, however, often have an interest rate that’s 14% or lower. 

In addition to having a lower interest rate, these cards can also have no interest periods, typically up to 55 days.

The downside of low-interest credit cards is that they generally come with more restrictions, fewer rewards, and a higher annual fee.

Balance transfer credit cards A balance transfer credit card is when you transfer your outstanding debt from one credit card to your balance transfer credit card. 

The benefits of a balance transfer credit card are that they usually come with a low interest rate or even an interest-free period. This gives you the opportunity to repay your debt within the interest-free, or low-interest, period.

If you can’t repay your debt within this period, then it might cost you more in the long run.

No annual fee credit card As the name suggests, a no annual fee credit card is a credit card that doesn’t have an annual fee. There are typically two versions of this card. The first is when you never have to pay an annual fee for the life of the card. The second is when you don’t have to pay the annual fee for an introductory period, which usually spans 1-2 years.

Because you’re not being charged an annual fee, this type of card often comes with a higher interest rate.

Rewards credit card Rewards are a popular type of credit card, as they often give you some kind of reward simply for spending money. The reward is generally given in the form of points which you can use for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points, and petrol rewards.

Like everything in life, nothing comes for free. Rewards credit cards typically come with higher annual fees and interest rates. It can also take a while to build up the points, and they can expire. That’s why it’s beneficial to read the conditions of the rewards and see if they are worth the extra fees and higher interest.

Cashback credit card A cashback credit card is a type of rewards credit card. However, with this specific card type, you can get cash back when you make purchases. 

There’s a couple of ways this can happen, you might get a cash voucher or the money credited back to your account. Similar to rewards credit cards, cash back credit cards usually have higher interest rates and annual fees. Some cards can also cap how many cashback points you can earn.

Platinum or black credit card Platinum or black credit cards are at the upper end of credit cards. They come with a range of benefits including exclusive dining and travel deals, as well as rewards points that don’t expire. 

You can get one of these cards if you’re 18 years or older and your salary exceeds $50,000 a year. The downside of these cards is the higher annual fees and interest rates.

Who provides credit cards?

Let’s tackle the next question – where can you get a credit card? Gone are the days when banks are the only institution that offers credit cards. Here is a range of companies and financial institutions that offer credit cards:

  • Australian and international banks;
  • Financial institutions, 
  • Airlines, such as Qantas and Virgin;
  • Supermarket chains, such as Woolworths and Coles;
  • Visa and Mastercard;
  • eCommerce companies like Kogan;
  • Department stores, including David Jones.

What credit card is right for me?

In Australia, there are so many credit card options available for you to choose from. It can be overwhelming when trying to decide what credit card is the right fit for you. To help you on your journey, we have listed a couple of questions you should ask yourself when making your decision.

  1. What will I be using the credit card for – day to day spending, to pay for bills, or to make big purchases every so often;
  2. Will I be able to pay off my credit card in full each month?
  3. Am I, at times, forgetful and not the best at sticking to a budget and therefore, likely to carry over a balance each month?
  4. Do I travel a lot?
  5. Do I exclusively do my grocery shopping at one brand – like Coles or Woolworths?
  6. Do I need a credit card, and can I afford it? Do I already have a lot of debt?
  7. Will a credit card help or harm my credit score?

Before you apply for a credit card

Taking on a credit card can be a big decision. Before applying for a credit card you should make sure that you can afford to make the repayments, that you understand how to use a credit card effectively, and you can handle your debt responsibly. 

It is easy for credit card debt to spiral out of control, so you should do your research and budget before taking on the responsibility. If you are ever unsure, you can speak to a financial counsellor for free to see if taking on a credit card is the right financial choice for you.

Is Debt Consolidation Right For You?

debt consolidation

Is debt consolidation right for you? There are a few things you need to consider before opting for debt consolidation or refinancing. Tippla has provided you with an easy guide below.

debt consolidation

What is debt consolidation?

Let’s start first with the most important question – what is debt consolidation? Put simply, it’s the process of using one loan to pay off multiple other loans. If you have more than one loan, then consolidating your debt, and rolling it into one consolidated loan, could sound like a good idea.

How does it work?

Let’s say you have three different credit cards of different amounts ($3,000, $5,000 and $8,000 for example). For each of these loans you will be paying separate interest rates, annual fees and your repayments will likely be at different times across the month.

If you want to consolidate your debt, you could instead take out a single personal loan, and use that to pay off the balance of your three credit cards, as well as outstanding interest and annual fees. Then you’ll only need to focus on repaying the single personal loan. That means you’ll only have one interest rate. 

Generally speaking, the interest rate for personal loans is lower than that of credit cards. However, with credit cards, you typically only need to pay interest if you carry over a balance at the end of the month. With personal loans, you are often paying interest each month, regardless of how much you pay. 

Different ways to consolidate debt

There are a few ways that you can consolidate your debt. Here are the three main ways:

  1. You can combine all of your debt into a single personal loan;
  2. If you’re wanting to consolidate your credit card debt, you can consolidate it using a balance transfer credit card;
  3. If you’re wanting to consolidate your mortgage, you can do so with a home loan top-up or opt for refinancing.

Why would you consolidate your debt?

In what situation would you consolidate your debt? If you have multiple different loans or types of credit, then you might take out a debt consolidation loan to achieve the following:

  1. Get a potentially lower interest rate;
  2. Make your repayments easier and streamlined;
  3. Have a clear timeline of when you’ll be debt-free.

Things to consider

Before taking out a debt consolidation loan, there are some things you should consider. We’ve listed the pros and cons below.

Pros

There are some pros to consolidating your debt. Here are a few:

Convenience

When you consolidate your debt, instead of having to keep track of multiple repayments, you will only need to worry about one. That means, less worry for you and less chance you might forget to repay your outstanding debt and risk harming your credit score.

Fixed rates and terms

When you take on a debt consolidation loan, you can get a loan with a fixed interest rate and term. That means you’ll know exactly how much you need to pay each month and when. This can make it much easier to budget for and could reduce the likelihood that you’d default on your loan. 

However, it is worth pointing out here, that you shouldn’t take on a loan that you can’t afford to pay. Defaulting on your loan could result in you having to pay fees and a higher interest rate, which could cost you more. Plus, defaults can harm your credit score.

Lowering your monthly repayment

If you take on a longer loan term, then your payments will be spread across a longer period and therefore, your monthly repayments should be lower. However, the longer you take to repay your loan, the more interest you’ll have to pay. This could cost you more in the long run. It’s always important to weigh the short term benefits against the long-term cost to see if you’re saving money.

Cons

Here are some of the downsides of consolidating your debt:

You might end up paying more and accumulating more debt

When you’re considering debt consolidation, you should compare the interest rate for the new loan, as well as the fees and any other costs, against your current loans or credit cards. If your new loan is going to be more expensive than your existing credit, then it might not be worthwhile to consolidate your debt. 

After all, the purpose of consolidating your debt is to try and reduce it. This is especially true if you have taken on a loan with a longer loan term, as you will likely be paying interest for the life of the loan.

It could damage your credit score

There are several ways in which taking on a debt consolidation loan could damage your credit score if you don’t use it properly. Namely, every time you apply for some kind of credit, whether it be a loan or credit card, a hard enquiry will appear on your credit report and lower your credit score, initially.

Furthermore, if you take on a debt consolidation loan and you’re not able to pay it back and you default on your repayments, then this will also hurt your credit score. That’s why it’s important to consider whether consolidating your debt is right for you.

Is debt consolidation right for you?

Unfortunately, the answer to the question “is debt consolidation right for you” completely depends on your financial situation. That’s why it’s important to weigh the pros and cons and make a decision that’s best for you.

If you’re not sure, here are some steps you can take first:

  1. Reach out to a financial counsellor, they’re free, and they can provide you with advice tailored to your situation;
  2. Reach out to your credit providers to see if they can change your repayments or extend your loans. The National Debt Helpline has some helpful information on how you can negotiate payment terms.
  3. If you are wanting to consolidate your home loan, it could be worth chatting with your mortgage provider, especially if you are going through hardship. Alternatively, it could be beneficial to switch home loans altogether and find one with a lower interest rate and fewer fees.

5 Ways to Reduce Credit Card Fees

reduce credit card fees

Whilst credit cards can be a useful tool, they often come with a range of different fees. Credit card fees can end up costing you a lot of money in the long run. That’s why we’ve put together this helpful guide on how to reduce credit card fees in 5 simple ways.

reduce credit card fees

What is a credit card?

Before we dive into the ways you can reduce credit card fees – let’s start with the basics. What is a credit card? A credit card is a line of revolving credit at a set limit that refreshes periodically, generally each month. 

You can use a credit card to make purchases, balance transfers and cash advances. When you take out a credit card, you do so with the condition that you pay back the money that you spent, plus any additional interest. At the very least, you’ll have to make the minimum repayment each month by the due date.

Different types of credit cards

There are many different types of credit cards which all come with their unique benefits and downfalls. One key rule to keep in mind – if you are getting some kind of benefit, such as rewards, low-interest rates or no annual fee, you are often paying for it in another way. This could be through extra fees or higher interest rates. That’s why it’s a good idea to weigh the pros and cons before deciding on which card is right for you.

Here are some of the most common types of credit cards:

  • Low-interest credit card – a low-interest credit card, is a card that offers a lower interest rate than normal. However, to offset the lower interest rate, these types of cards often come with a higher annual fee, more restrictions and fewer rewards.
  • Balance transfer credit card – A balance transfer credit card allows you to transfer your credit card debt from another credit card to this one. A balance transfer credit card usually comes with lower interest rates or even an interest-free period. This allows you to repay your debt and save paying interest on your other card. However, this card is only beneficial if you can pay it off within the low or interest-free period, otherwise, it could end up costing you more.
  • No annual fee credit card – like the name suggests, this kind of credit card doesn’t come with an annual fee, either for a set period or for the life of the card. However, you’ll usually be charged higher interest rates, which could cost you more in the long run.
  • Rewards credit card – This kind of credit card gives you some kind of reward when you make purchases, whether it’s frequent flyer points, retail rewards, supermarket rewards, cashback deals, and petrol rewards. 

Common credit card fees

There are several different credit card fees that you’ll need to keep an eye out for. What fees you’ll be charged, and how much they’ll cost you, completely depend on your specific card. That’s why it’s important to read the terms and conditions carefully before applying for a credit card.

Here’s a breakdown of some of the most common credit card fees.  

Annual Fees Most credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
Interest Just like an annual fee, most credit cards come with interest. You will be charged interest when you carry a balance (when you don’t completely pay off your credit card debt for the month). 

There are different types of interest rates. They might be called: purchase rate, cash advance rate, balance transfer rate or promotional interest rate. 

Balance transfer fee A balance transfer is when you move your existing debt onto a new account. This can allow you to get on top of your debt, but, you’ll generally be charged a fee to do so.
Cash advance fee When you withdraw money from an ATM with your credit card or buy foreign currency – this is referred to as a cash advance. When you perform either of these actions you will generally be charged a cash advance fee.
Late payment fee Your credit card limit typically refreshes each month. At the end of your monthly period, you’ll receive your bill for how much you’ve spent. With credit cards, you don’t have to repay the full amount, but you’ll pay at least the minimum amount by the due date to avoid late payment fees. If you don’t, then you’ll likely be charged a late payment fee.
International transaction fee If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee. An international transaction fee can also be called a foreign transaction fee or a currency conversion fee.

How to reduce credit card fees

Now that you’re armed with all of the information you need on types of credit cards and common fees, let’s get stuck into how to reduce credit card fees. Here are five things you could do.

1. Pay your card off in full before the due date

Each month, you will receive your credit card bill. If you don’t pay this off by the due date, you will be charged late fees and interest. If you pay the full amount off each month, not only will you avoid late fees, but you’ll also avoid having to pay interest on the amount carried over into the next month. This is a great way to reduce credit card fees.

Or, at least make your minimum repayment by the due date

If you can’t repay your credit card balance off in full each month, you should try and at least make your minimum repayment. Your minimum repayment is the lowest monthly repayment you can make without incurring late fees. The minimum monthly repayment is usually about 2 or 3% of the total amount you owe for the month.

By paying the minimum repayment by the due date, you won’t have to pay late fees. However, you’ll still accrue interest on what’s still owing, and this could cost you a lot in the long run.

Therefore, if you want to reduce credit cards fees, you could try and repay your balance off in full each month, or at the very least, make your minimum repayments. It is also worth highlighting that many credit cards, especially low-interest rate credit cards, will void the credit card offer or rewards system if you are late with a payment.

2. Opt for a low annual fee credit card

There are certain credit cards on the market that offer good deals for the annual fee. Some cards might offer a low annual fee and some might offer no annual fees either for a certain time or for the life of the card.

Whilst this is a good way to reduce credit card fees, it is important to highlight that many of these cards will offset the lower annual fee with higher interest rates. This could cost you more in the long run. That’s why it’s a good idea to weigh your options and see what’s the best decision for you.

3. Avoid using your credit card to make ATM withdrawals

When you use your credit card to withdraw money from an ATM, this is called a cash advance. Just like any other purchase you make with your credit card, you will need to pay this back. What’s more – most credit card providers charge a fee for cash advances. How much the fee is, depends on your specific card. 

If you want to reduce credit card fees, you could do this by not using your credit card to withdraw money from an ATM. If you need to withdraw money from an ATM, you could use your debit card instead, which might not charge you any fees.

4. Don’t use your credit card for international transactions

If you want to avoid being charged a fee for international transactions, there are two ways you can go about this. The first is you can shop around and look for a credit card that doesn’t charge a fee for international transactions. Alternatively, you could avoid making foreign transactions on your card altogether. Either of these options could help you reduce credit card fees.

5. Do your research before applying for a credit card

The final tip to reduce credit card fees is to do your research before applying for a credit card. Think of why you want a credit card and then try and find the best one for your needs. You could compare interest rates, fees, and find one that best aligns with your needs.

Does a Personal Loan Harm My Credit Score?

Does a Personal Loan Harm My Credit Score

There are many reasons you might want to take on a personal loan – an unexpected expense, an upcoming holiday, or even to cover a medical bill. But if you’re wondering “does a personal loan harm my credit score?”, Tippla has done the legwork for you! Below you’ll find the information you need to know.

Does a Personal Loan Harm My Credit Score

What is a personal loan?

A personal loan is a type of credit that allows you to make big purchases or consolidate your debts. These types of loans are repaid with interest over a fixed term, ranging from months to years. You can apply for a personal loan from a bank, credit union, or online lender.

The reason for taking out a personal loan can vary. Here are some examples:

  • Consolidating debt;
  • Big purchases: car, holiday, wedding, renovations, medical, etc;
  • To cover unexpected expenses.

If you decide to apply for a personal loan, it can be overwhelming to see how many options are out there. It can be difficult to understand what’s the best loan for you. Here are some key factors to keep an eye out for when comparing loans:

  • Interest rate;
  • Repayment terms;
  • Borrowing limits (minimum and maximum amounts);
  • Fees;
  • Collateral requirements.

Types of personal loans

There are many options for personal loans. That’s why it’s important to understand your personal and financial situation so you can choose the best option for you. Here’s a breakdown of the two most common types of personal loans:

Secured loan: a secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security and if you default on your loan, then you’re at risk of losing the asset.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

Unsecured loan: as the name suggests, an unsecured personal loan has no asset attached to the loan. Because of this, the lender is taking on more risk which means you’ll generally be charged higher fees and interest rates than a secured loan. This type of loan is good if you don’t have an asset, though you may have to convince the lender that you’re able to make the repayments through proof of income, and if this is your first loan, you may require a guarantor for security. 

What is a credit score?

Before moving straight into discussing the question “does a personal loan harm my credit score”, let’s take a moment to talk about credit scores. Let’s start with the most important question – what is a credit score? A credit score is a number that ranges from 0 – 1,200. 

A lot of people don’t know how credit scores are calculated. To put it simply, your rating is based on the information contained in your credit report. Your report considers factors such as your repayment history, your credit accounts and even how many times you have applied for credit.

A good credit score indicates to lenders that you have a high level of creditworthiness. The better your score, the more likely you will be approved for a loan and reap the benefits of a higher loan amount and/or lower rates. Your score falls somewhere on a five-point scale ranging from below average up to excellent. 

Equifax and Experian credit scores

Source: Equifax and Experian

Does a personal loan harm my credit score?

Unfortunately, there isn’t a simple answer to “does a personal loan harm my credit score”. Like any form of credit, a personal loan will affect your credit score. But how it affects your score depends on how you handle the personal loan.

When you first make an application for the loan, your credit score will be lowered. Whilst your credit rating will take a hit when applying for the loan, after this point, a personal loan can be beneficial for your score. When used responsibly, your credit score can improve when you take out a personal loan. 

Let’s take a closer look at this.

Applications

When searching for the right personal loan you should try and minimise the number of applications you make. Why is this? When you apply for a personal loan, you are giving the company you’re applying to permission to check your credit report. When they check your credit report this is referred to as a hard enquiry. Hard enquiries harm your credit score, regardless of whether you are approved.

A large number of applications within a short period of time are not viewed positively. Not only will the multiple applications harm your credit score further, but future lenders may also assess your application and deem this proof of you being rejected previously, thus making you a risky borrower.

Instead, you could consider researching your options further and only make one application for the loan which best matches your criteria.

Repayments

If you fail to repay the loan, it will appear on your credit report as a default. This will negatively impact your credit score. Not only will this stay on your credit report for five years, but you may also lose the asset you used to secure the loan (if applicable) or run the risk of having to deal with debt collectors.

What to consider before taking on a personal loan

So we’ve covered the question of does a personal loan harm my credit score, but what about the factors you should consider before taking out a personal loan? Here are some things you should consider before applying for a loan.

Do you meet the loan requirements?

The first thing you can consider is whether you meet the requirements for a personal loan. The basic requirements of any loan are that you are over the age of 18, have a regular income, be a permanent Australian resident (or hold an acceptable non-resident visa), and can provide an overview of your current financial situation.

Check the terms and conditions

The next step you could take is to look into the finer details of your loan. The interest rate is the amount that the financial institution charges in addition to the money you’ve borrowed. Aiming to find the lowest interest rate means that you can focus on paying off your loan rather than extra interest. 

On top of interest rates, you may also have fees associated with your loan. All loans have different associated fees; some to look out for include establishment, servicing, early repayment, early exit, insurance, and withdrawal fees. 

How long is your loan term?

Another factor worth considering is the term of the loan. The length of your personal loan will determine the amount of interest you are charged over its life. Typically, the longer the loan, the lower the monthly repayments. 

How will you pay off the loan?

When taking on a loan, it is important to know beforehand how you will pay off the loan. Whether you choose to opt for weekly, fortnightly, or monthly repayments – or even want to pay it off sooner than the term. Such elements are great starting points to consider before making any personal loan applications.

Effectively manage debt

As we’ve addressed in this article, the question “does a personal loan harm my credit score” isn’t a straightforward one. But if you can effectively manage your personal loan and your debt, then you could actually make your loan work for you.

Here are some easy steps you could take to effectively manage your debt:

  • Consistently make your repayments;
  • Don’t borrow more money than you can afford;
  • Consolidate your debt;
  • Take the time to look for the loan that offers the best value instead of creating multiple applications;
  • Consider making extra repayments if you can;
  • Seek expert advice if you encounter trouble.

What’s The Difference Between Credit Cards And Personal Loans?

credit cards and personal loans

If you are looking for extra finance, whether it’s to make a big purchase, cover unexpected expenses, or build a credit history, there are two main options available for you – a credit card or personal loan. These two types of credit are very popular in Australia, but we’re here to break down the difference between credit cards and personal loans, so you can choose what’s best for you.

credit cards and personal loans

What is a credit card?

Before we jump into the difference between credit cards and personal loans, let’s start with the basics – what is a credit card? Literally speaking, a credit card is a piece of plastic or metal that is issued by a bank or financial services company. 

You can use a credit card to pay for goods and services, as well as any personal expenses that may arise. A credit card is a line of credit that you can use to pay for personal or business expenses on the promise that you repay the money back, often with interest. Your credit card is a revolving line of credit, which means it refreshes after a certain period of time – typically each month, and it will continue to do so up until you cancel the card.

Because a credit card is a line of credit, this means you don’t need to have the money physically in your bank account, as is the case with a debit card. This is where credit cards and personal loans are similar.

Different types of credit cards

In Australia, there are many different types of credit cards. Whilst the basics stay the same, the different types of credit cards all come with their unique purposes and benefits. Here’s a quick overview of the different options available to you.

Low-interest credit cards As the name suggests, a low-interest credit card is a credit card that offers a lower interest rate than normal. Many credit cards charge 20% or more on purchases, whereas low interest-rate credit cards generally have an interest rate that’s 14% or lower. These cards can also come with no interest periods, typically up to 55 days. However, low-interest credit cards can generally come with more restrictions, fewer rewards and a higher annual fee.
Balance transfer credit cards A balance transfer credit card is when you transfer your outstanding debt from one credit card to your balance transfer credit card. The balance transfer credit card usually has a low interest rate or sometimes even a 0% interest rate for a limited time. 

This allows you to repay your existing debt, and try and repay your new debt with the balance transfer credit card within the interest-free or low-interest period, which can save you money. However, if you can’t repay it within this period, then it might cost you more in the long run.

No annual fee credit card Most credit cards come with an annual fee that you have to pay each year across the life of your credit card. A no annual fee credit card is a type of credit card where you don’t have to pay this fee. 

There are two main types of no annual fee credit cards – the first is where you don’t have to pay an annual fee during the whole life of the credit card, the second is where you don’t have to pay an annual fee during an introductory period, which usually lasts for 1 or 2 years.

To offset the lack of an annual fee, these types of credit cards usually come with higher interest rates, which could actually cost you more in the end.

Rewards credit card Rewards credit cards give you some kind of reward, usually in the form of points, every time you make a purchase. There are many different types of rewards cards, and the points can be used for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points and petrol rewards.

Whilst these cards can give you bonuses, they don’t come for free. Generally speaking, rewards cards often come with higher annual fees and it can take a while for the points to build up (and they can expire). So, it’s important to read the terms and conditions carefully and weigh up the pros and cons.

Cashback credit card With cashback credit cards, you can get cashback when you make purchases. This can come in the form of a cash voucher or money credited back to your account. However, as with all types of credit cards – when there are perks, that generally means higher fees. 

In this instance, cashback credit cards often come with higher interest rates and an annual fee. Some cards can also cap how many cashback points you can earn.

Frequent flyer credit card A frequent flyer credit card is a common type of rewards credit card, and it’s great for those who love to travel. When you spend on your frequent flyer credit card, you’ll accrue points. When you build up enough points you can put them towards flights and either get cheaper flights or have the whole cost covered by points – depending on how many you have.

The downsides to this type of credit card are that the frequent flyer points can expire. These types of credit cards also generally come with standard credit cards fees such as – annual fee, program fee, cash advance fee and more.

Platinum or black credit card Platinum or black credit cards are high-end credit cards. You can get a number of benefits with these cards – exclusive dining and travel deals, as well as rewards points that don’t expire. If you’re over 18 and earn more than $50,000 each year, have a good credit score, then you can apply for one of these credit cards.

Some of the drawbacks of a platinum credit card include much higher annual fees and interest rates.

What is a personal loan?

Similar to a credit card, a personal loan is a line of credit that allows you to pay for personal expenses – whatever they may be. A personal loan allows you to borrow a specific amount of money under the agreement that you pay it back within a predetermined time period, referred to as the loan term, with interest. 

The interest rate you are charged will depend on a couple of factors, including your credit score. Want to see where you’re at? Check your credit score with Tippla here.

When taking on a personal loan, you can get a loan with a fixed or variable interest rate. You can also choose between a secured or unsecured personal loan. 

Different types of personal loans

There are a couple of different types of personal loans. Here is a breakdown below.

Secured and unsecured personal loans

The two main types of personal loans are secured and unsecured personal loans. A secured personal loan is when you take on a personal loan that is guaranteed by an asset such as a car. This asset is used as security against you defaulting on your loan. If you default on your repayments and can’t afford to repay the loan, then you are at risk of losing your asset.

Secured personal loans are generally used to purchase the security you’re using against the loan. Let’s break that down. Say you want a loan to buy a car, then the car you buy will be the security on the loan.

One of the benefits of a secured loan is that you can generally get lower interest rates. Interest rates are set to protect the lender against the risk of you defaulting on your loan. Because your asset serves as collateral, the lender can afford to offer you lower interest rates, because they have already hedged against the risk of you defaulting on your loan.

Unsecured personal loans, on the other hand, is a personal loan that you don’t have to provide any security for. Reasons for taking out an unsecured personal loan range from holiday expenses, home improvements, unexpected expenses, medical bills and more.

Because there’s no security against the loan, the interest rates are generally higher for unsecured loans. But on the plus sign, the application and approval process is usually quicker.

Fixed or variable interest rate personal loans

When it comes to interest rates on personal loans, the most common are either fixed-rate or variable-rate loans. Here’s what that means. A fixed-rate personal loan is when the interest stays the same for the whole loan term.

One of the perks of this is it allows you to easily budget for your repayments, as they stay the same each month. However, a downside of this is you could miss out on your interest rate being reduced if interest rates go down. On the flip side, if interest rates go up, then you’re protected with a fixed-rate personal loan.

Variable-rate personal loans are when the interest you’re charged each month isn’t the same, and it can fluctuate depending on the market. Some of the pros of this type of loan include – fewer repayments because you can make earlier repayments and pay off your loan sooner, more flexibility and potentially lower interest rates.

Although there are some positives to choosing this type of loan, there are still some things to consider. Namely, you might end up having to pay more in interest if the interest rate rises. This can cost you in the long run.

What’s the difference between credit cards and personal loans?

Whilst there are many similarities between a credit card and a personal loan, there are also some differences. So what is the difference between credit cards and personal loans? Here are the main points:

Borrowing amount

When you are approved for a personal loan, you will be given a set amount of money in a lump sum at the beginning of the loan term. You can’t spend more than the amount you have been given unless you take out an additional loan. With a credit card, the borrowing limit refreshes each month, so your borrowing limit is more flexible than a personal loan.

Length of term

Personal loans generally come with a fixed term, whether it be a couple of months or years, and they come with a termination date. Credit cards, on the other hand, are a revolving line of credit and refresh each month. For most credit cards, you can have them for as long as you want – whether that’s a month, years, or even decades. The length of time is determined by you as the customer.

Interest rates

Personal loans generally have lower interest rates than credit cards. According to the Reserve Bank of Australia (RBA), the average variable interest rate for a personal loan as of September 2020 was 14.41% and 12.42% for a fixed personal loan. Whereas the average credit card interest rate ranges from 16-18%, according to numerous comparison sites. However, you can avoid paying interest on your credit card if you pay off the card balance in full each month.

Rewards

Although credit cards might have higher interest rates, they generally come with more rewards and perks. As we covered above, sometimes you might end up paying more for these perks, but if you use them wisely, you can make them work for you.

What’s the right decision for me?

Now you know the difference between credit cards and personal loans, you might now be thinking about what’s the best choice for you. At the end of the day, only you know your financial situation. However, there are a couple of things you can consider when choosing between a credit card or a personal loan. 

Firstly, if you have control over your spending and can follow a budget, then a credit card might meet your needs. Whereas if you’re looking to make a big one-off purchase or pay for an expense, a personal loan might be better for you.

If you’re unsure, you can speak to a free financial counsellor who can help you make the best decision for your personal situation.