Borrowing money
If you get a loan or buy something on credit you are using someone else's money and you have to pay a fee.
It's much cheaper to save up your own money to buy things, instead of going into debt. But if you do need to borrow, here is some information to help you understand and manage your loans and credit cards.
Different types of credit
You are borrowing money if you sign up for:- Book up
- Credit cards
- Store cards
- Car loans, personal loans or home loans
- Interest-free deals
- Bank overdrafts
- Payday loans or cash advances
Loans and interest rates
Video: The loan shark
Find out what happens to Aunty and the loan shark.
Available in English and Pitjantjatara language
Available in English and Pitjantjatara language
This story was made by isee-ilearn.com ©. For more stories visitwww.italklibrary.com/
When you borrow money you have to pay interest – a 'fee' for the use of the money borrowed. It's usually a percentage of the amount of money you borrow.
Always check the rate of interest you will be charged. The higher the interest, the more money you will have to pay back. Also find out if the interest is charged monthly, quarterly or yearly because this can make a big difference to how much you owe.
Case study: Jess gets a better deal
Jess borrows $600 for a year, at an interest rate of 10%. The interest is charged at the end of the year. Dan borrows $600 for a year at an interest rate of 5%. The interest is charged per month. Dan thought he got a better deal but after a year, Jess only has to pay back $660 ($600 plus $60 in interest). On the other hand, Dan has to pay $1,078 ($600 plus $478 in interest).
Use our personal loan calculator to find out how much you will be charged when you borrow money.
Payday loans
A payday loan is a short-term loan that you repay on the date of your next pay. These loans are very expensive. They charge high interest rates (sometimes 48%) and high fees.
Case study: Paul gets a payday loan
Paul needed to borrow $200 until his next pay. He got a payday loan and was charged $40 in fees. Paul couldn't pay the loan back when he got his pay and was charged 40% interest. A week later, when Paul got paid again, he had to pay back $320 – the loan and the interest. Paul should have tried to find other ways to borrow money rather than using a payday loan.
Back To TopCredit cards
Credit cards let you buy things now and pay for them later. They can be very expensive with high fees and charges.
Here are some tips on using your credit card:
- Pay the full amount you owe every month. If you don't pay your credit card balance in full each month, it will take you a long time to pay off the total and you will pay a lot of extra interest.
- Don't get cash out of your account using your credit card. You will have to pay more in fees. Even if you pay the full amount back within the month, you still have to pay extra for withdrawing the cash.
- Use our credit card calculator. See how your debt can grow.
- Read your credit card statements carefully. If you have been charged incorrectly contact your bank or credit union immediately. For more information see make a complaint.
- Be careful with store cards. Before signing up to one of these credit cards, find out how much the fees and charges are. They can be much more expensive than other credit cards.
Case study: Gary paid off his credit card in 10 years
Gary signed up to a credit card offer he received in the mail. He went straight to the shops and bought a fridge for $1,000. A month later, Gary got the bill in the mail. The monthly minimum repayment was only $20, so that's all he paid. Gary was still paying for the fridge almost 10 years later. In that time, he had paid an extra $500 in interest.
For more information see credit cards.
Back To TopInterest-free deals
Big stores also sometimes offer interest-free deals for things like computers, electrical appliances and whitegoods. These deals might not be as cheap as they seem.
Tips for using interest-free deals:
- Check the fees. Interest-free does not mean cost fee, you will still have to pay ongoing fees.
- Pay off the deal before the interest-free period ends. If you don't you will be charged a very high amount of interest
Case study: Jenni buys a TV interest-free
Jenni bought a TV for $500, with a 12-month interest-free period. She was charged $20 a month in fees during the interest-free period. At the end of the interest-free period, Jenni had not paid off the TV and so she was charged 30% interest. In the end, the TV cost Jenni $900 (the actual cost, fees and interest).
For more information see interest-free deals.
It's cheaper to save your own money than to borrow. But if you do borrow check your budget to make sure you can afford the repayments. For more information listen to our audio segments on banks, loans and credit cards.
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