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WHAT
TYPE OF CREDIT IS BEST?
Different
types of credit suit different circumstances. The type
of credit that's best for you will depend on how you want
to use the borrowed money, and on your individual financial
circumstances. Refer to the table, Comparing Credit on
page 15 to compare the pros and cons of various forms
of credit, and for some recommendations on how (and how
not) to use them. |
CAN
YOU AFFORD IT?
Credit is a big responsibility, so it
pays to do your sums before applying for a credit arrangement.
Do a budget to get a clear understanding of your current
financial situation. Can you afford to take on the debt?
Can you afford to make the repayments? And don't forget
to think ahead. If your circumstances change - for example,
if you are temporarily out of work, or if you encounter
an unexpected expense such as a car repair bill - will
you still be able to make the repayments? |
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FACTORS
TO CONSIDER BEFORE YOU APPLY
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Can
you afford it? |
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Do
you really need the item you are trying to purchase? |
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How
much is the item going to cost you over time, once you add interest
and fees and charges to be paid for the loan? |
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Is
your credit history in good shape? |
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Which
type of credit is best suited for your situation? |
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Who
is the credit provider - are you confident they will uphold
your rights and their responsibilities? |
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Will
you need to take out any other products? |
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ARE
YOU ELIGIBLE?
So, you've decided to borrow some
money from your bank. How will your bank determine your eligibility
for a loan or credit card? Banks typically consider a number of factors,
including your employment status, income, savings, existing debts,
and your credit report. |
WHAT
IS A CREDIT REPORT?
In Australia, reporting agencies
hold credit reports on individuals who have, at some point, applied
for credit. If you have applied for a loan, a credit card or even
a telephone account, you probably have a credit report.
Credit reports
contain information such as the types of credit you've applied for
and, any overdue payments of 60 days or more in cases where you've
been sent notice of the default and the credit provider has taken
steps to recover the amount. |
GETTING
A COPY OF YOUR CREDIT REPORT
If you're thinking of applying
for credit, it's a good idea to check your credit history first in
order to make sure the details listed are accurate and up-to-date.
Sometimes, the first time people become aware of their credit report
is when a loan or credit application is declined, and this occasionally
happens as a result of an incorrect listing on your credit report,
or an error in your personal details. You can obtain a free copy of
your credit report by applying in writing to Baycorp Advantage. The
report will be mailed to you within 10 days of receiving your written
request. Alternatively, for a fee of $23, they will provide a copy
of your credit report by fax or mail within one day of receiving your
request. Contact Baycorp Advantage on (02) 9464 6000 to find out how,
or visit www.baycorpadvantage.com.
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BEFORE
YOU SIGN UP...THE CREDIT CONTRACT
All forms of credit come with
a credit contract, whether it's agreeing to terms and conditions on
a credit card, or signing a credit contract when taking out a personal
loan or taking advantage of an interest-free deal at a local store.
Once you sign the contract or otherwise accept it (such as by using
a credit card) you are bound by the conditions in the contract - regardless
of whether you have read them.
So, always read the detail in the information provided before entering
into any credit arrangements. It's the only way to be sure of what
you'll be paying - now, and down the track.
Remember, although some
deals may look attractive, you need to read the detail so you understand
the fees, charges and interest rates that make up the cost of the
deal.
Avoid signing up on the spot, and never feel pressured to do
so (no matter how insistent the sales person might be). Take the time
you need to read the necessary paperwork. When it comes to making
a final decision, 'sleep on it' for a few days (or longer), that way
you've got time to consider all the implications of the credit arrangement
and change your mind before you commit yourself.
Decline any offers
that you're unsure of or uncomfortable about. And listen to your gut
- if it's telling you that something's not quite right, walk away.
At the very least, take a step back and reassess the offer, and consider
getting a second opinion. |
SHOP
AROUND
Every bank is different, and most banks
offer a range of options when it comes to borrowing money.
Don't just take the first product you hear about - instead,
take the time to find out about the products they offer. Then,
compare the results of your search and select the product
and the bank that you feel best suits your needs.
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COMPARING
CREDIT
All
forms of credit give you the ability to purchase goods now and
pay for them later. On the other hand, the potential to spend
more than you can afford to repay is a potential trap that all
forms of credit share. We've put together the following table
to help you compare the different types of credit available,
and see which ones may or may not be suitable for certain situations.
But remember, the most important question to ask about credit
is whether you can repay the debt within a realistic time frame,
and without causing you financial and emotional hardship. |
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COMPARING
CREDIT
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MAY NOT BE A GOOD OPTION IF |
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Offers
24-hour access to money and can be accepted by many
businesses worldwide |
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Interest-free
credit if well managed and paid off in full by the
due date |
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Safer
to carry around than cash |
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Can
use to purchase over the phone or Internet, as well
as in person |
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Fully
itemised statements showing all purchases made over
the statement period |
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May
offer additional benefits such as travel insurance
and purchase protection |
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Relatively
high interest rate |
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Can
be easy to overspend if not managed carefully |
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If
only making minimum repayments it can take years
to repay (and add lots of money on interest) |
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Various
fees and charges may apply |
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If
used to obtain cash, i.e. through a cash advance,
additional fees and interest can apply |
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Everyday
outlays for small to medium items that can easily
be paid off within the statement period |
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Making
purchases online or over the phone |
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Travelling
overseas, and in situations where cash is not safe
or convenient to carry |
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Emergency
or other unavoidable situations where you don't
have cash available to pay |
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Obtaining
cash (i.e. through cash advances) |
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Purchasing
large items that will take a long time to pay off
(a personal loan may provide a cheaper option in
this situation) |
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You
tend to make purchases without keeping track of
how much you're spending and without knowing whether
you can afford to pay for it within a realistic
time frame |
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May
provide access to interest-free deals in the store
or retail group that issues the card |
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May
provide access to discounts on purchases and in-store
reward programs |
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Interest
rates may be higher than credit card interest rates |
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Can
be easy to overspend if not managed carefully |
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Can
involve a number of fees and charges |
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May
only be able to be used in the store or retail group
that issues them (depending on card type) |
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Everyday
purchases in specific stores, particularly if 'special
offers' are available to store card holders |
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May
be able to be used more widely |
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Another
form of credit with cheaper interest rates can
be used instead |
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Purchasing
large items that will take a long time to pay
off (a personal loan may provide a cheaper option
in this situation) |
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You
tend to make purchases without keeping track of
how much you're spending and without knowing whether
you can afford to pay for it within a realistic
time frame |
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Can
provide a short-term buffer if you need to spend
more than you have in your account |
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Generally
have flexible repayment options |
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Interest
and fees and charges apply |
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Covering
short-term emergency outlays |
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Temporarily
cover cash requirements if there is not enough money
in your account |
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Another
form of credit with cheaper interest rates can
be used instead |
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Purchasing
large items that will take a long time to pay
off (a personal loan may provide a cheaper option
in this situation) |
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You
tend to make purchases without keeping track of
how much you're spending and without knowing whether
you can afford to pay for it within a realistic
time frame |
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| Personal
loan from a bank |
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Allow
you to purchase larger items that may take some
time to pay off |
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Generally
offer cheaper interest rates than credit cards |
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Can
sometimes choose between different repayment options
- e.g. fixed term or variable |
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Banks
must provide a comparison rate to aid shopping around |
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Can't
be used for everyday purchases |
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One-off
purchases that are large enough for you to require
some time to pay them off, for example a holiday
or car |
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Making
day-to-day purchases that you could either save
up for in a short space of time, or could obtain
using a credit card |
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Can
act as go-betweens between you and credit providers
to help you find a loan |
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May
charge you a fee for the service - often calculated
as a percentage of the loan amount |
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Unscrupulous
brokers may recommend a product, not because it
suits your needs or meets your cost requirements,
but because they will receive a high commission
for signing you up |
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Can't
necessarily find a loan that's any cheaper than
you could find yourself - and the addition of their
fee will ultimately make the loan more expensive |
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May
provide a credit option when all other potential
credit solutions have been exhausted and there is
no other alternative |
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Other
mainstream credit solutions are available |
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Can
allow you to obtain money when in dire need |
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Sometimes
available to those who have been unable to get money
through mainstream providers such as banks or credit
unions |
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Can
pay extremely high interest rates - in some cases
as high as 1000% per year |
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May
also pay a variety of fees and charges |
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Not
suitable for long-term credit requirements |
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May
provide a credit option when all other potential
credit solutions have been exhausted and there is
no other alternative |
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| Other
mainstream credit solutions are available |
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