A personal loan is a monetary loan you can get from a credit provider such as a bank, credit union or online lender – usually for a specific life purpose like renovating your home, paying for a holiday or consolidating several smaller loans.

Lenders approve personal loans by evaluating your creditworthiness.

When you enter into a contract for a personal loan, you typically receive money in a lump sum and agree to repay the lender back the money in regular instalments over a specific length of time.

You also pay interest on the amount you borrow, and in some cases, you may pay fees and other charges. These interest rates, fees and charges can vary from lender to lender, loan to loan and borrower to borrower.

How do personal loans work?

If you’re considering a personal loan, you should become familiar with some of the details, including how much you can borrow, how to apply and how much they cost. Here are some of the main concepts to remember:

• The amount you can borrow. Personal loan amounts can be very small or very large. We’ve seen lenders offer loans as little as $500 and as large as $70,000.
• The application and approval process. You can apply for some personal loans online in a matter of minutes and be approved (or denied) just as quickly. With others, you may have to visit a branch and it may take days for the approval process to complete.
• The cost. On top of requiring you to repay the loan amount, lenders make their money by charging you in a number of ways. These may include interest on the loan, as well as fees like an establishment fee, monthly fees, late payment fees and early discharge fees. Your specific combination of charges will be described in your contract.
• The loan term. This is how long you’ll be paying off the loan. We’ve seen loan terms as short as 3 months or as long as 7 years.
• The amount of repayments and when they are due. Your loan amount, interest rate and loan term will be set in advance, so it’s easy for the bank to calculate exactly what your regular payments will be and when they are due.

Types of personal loans

Here are the main types of personal loans you may encounter:

• Unsecured personal loans. Your standard personal loan you can use toward various life projects like a holiday, home renovation or medical bill.
• Car loans and other secured loans. A personal loan where you offer up an asset as collateral in case you can’t make your payments. This collateral is officially known as the security. Take for example a car loan, where the purchased car serves as security that the bank can repossess if you can’t make your payments
• Debt consolidation loan. A special type of personal loan you would use to pay off several smaller loans.
• Line of credit. A personal loan where a specific amount is available for you to borrow, but you don’t have to borrow it all. You only pay interest on the amount borrowed.
• Quick cash loan. A personal loan that doesn’t have a strict acceptance criteria so that people with lower credit scores can get the loans they need. These often come with higher interest rates and fees.

How much do personal loans cost?

The cost of personal loans will differ from person to person and loan to loan. A large part of this comes down to your creditworthiness. For example, someone with a higher credit score and a more positive borrowing history will often pay less for the same loan than someone with lower marks.

Here are some factors that will determine how much you’ll pay:

• Interest rate. This the percentage your debt will increase every year. Most personal loans will charge an interest rate. The Australian Securities & Investments Commission has capped interest rates at 48% but we’ve seen rates as low as 5.75%.
• Fees. Many loans will also charge fees on top of the interest, such as a one-off establishment fee to set up the loan or even monthly fees. Some very small loans might do away with an interest rate altogether in favour of one set loan fee.
• Comparison rate. This is simply a loan’s interest rate when fees are factored into it. Since not all loans charge the same fees, this comparison rate makes it easy for you to compare the loan cost of several loans side-by-side.
• Length of loan. Since your interest rate adds to your balance each year, the longer you have your loan, the more you’ll end up paying in the long run (all else being equal).
• Amount borrowed. Generally speaking, the more you borrow, the more you’ll end up paying for the loan.

How do you apply for a personal loan?

1. Decide how much you want to borrow. Work out how much money you need for your holiday, home renovations, debt consolidation or whatever personal project you need the funds for.
2. Work out how much you can afford for payments. Use a loan calculator to work out how long you’ll need to pay back the loan, based on how much you can afford to pay back per month.
3. Compare personal loan options. Identify a few lenders with loans that meet your criteria from the first two steps. You can find special loan offers for Credit Simple users here.
4. Gather your paperwork. Gather together any paperwork the lender asks for. This may include ID, bank statements and proof of address.
5. Apply. You can apply for most personal loans conveniently online.

Does applying for a personal loan affect your credit score?

When you apply for any loan, your credit score can dip slightly. However, with Australia’s Comprehensive Credit Reporting system, regular on-time payments can help your score go right back up.

Some lenders will advertise something along the lines of “free rate quote that won’t affect your credit score.” This means they will quote you a rate based off of basic info like your income and the amount you want to borrow – without doing a credit check.

But this is not the same as applying for the loan. If you want to apply for the loan based on the rate quoted to you, you will usually have to go through a credit check and your score may dip as a result.

Who should get a personal loan?

You should only get a personal loan if you have a specific purpose in mind for the money: to help pay for a special project, purchase or life event, or to help out in a time of emergency.

Taking out a lump sum without any real purpose for it could lead you to squander it and end up with a large debt with not much to show for it. For regular ongoing purchases you plan to pay off regularly, you could consider a credit card instead.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual or business. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post What is a personal loan? appeared first on Credit Simple.

Valentine’s day is just around the corner. And you know what that means: candle-light dinners, romantic water-side strolls, mouth-watering chocolates, exquisitely arranged bouquets and… your beloved’s outstanding debt? 

At first you’ll be enamoured by that special someone’s talents and strengths but there will come a day when you have to face their flaws. And no, we’re not talking about letting one rip in the middle of a Netflix special, because we all do that.

What we’re talking about here is the possibility that your loved one has poor financial habits – habits that could get you into trouble if you’re not careful.

We have an easy-to-follow guide to help you avoid becoming an unwitting victim to your partner’s illicit financial rendezvouses, but we just wanted to take this opportunity to offer a few reminders – so that this Valentine’s Day, you’re not seduced into a lifetime of financial betrayal.

How to avoid financial betrayal

Let’s just jump right in. Here are some ways you can protect yourself from your partner’s poor financial habits:

Be wary of going guarantor. 

Going guarantor on your partner’s loan means they don’t have the financial capability or credit health to get the loan themselves. Instead, they need to leverage your good financial standing. If they default, it’s on you. No ifs, ands or buts.

Pay attention to your joint credit accounts. 

In most cases, you’ll be just as responsible as your partner for any debts accrued on accounts you hold together. If they run up a huge bill on luxury bags or huge nights out with the boys, the lender and/or debt collections agencies can come after you.  

Check your statement regularly and if you see dodgy transactions, talk to your partner about your concerns. Seek couples counselling if necessary.

You should also check your credit score to see what, if any, your partner’s financial habits are having on your score.

Seek legal advice 

In the event of a divorce or separation, the combined debts that you and your partner accrued during the relationship will get deducted from the overall joint asset pool. 

This includes debt from joint credit accounts AND credit accounts in each of your individual names. So if your partner ran up gargantuan debts, you’ll end up with fewer assets when it’s all said and done – even if you weren’t aware of the debts at all.

However, there may be a remedy. If you can prove to a court that your partner accrued these debts without your knowledge and it’s clear the debts were of sole benefit to your partner, you may be able to get a court order removing these unscrupulous debts from the asset pool.

Bottom line

We don’t want to put a damper on your Valentine’s Day, since it’s meant to be a celebration of the love and respect between you and your partner. But it’s also a time when we’re too quick to don those rose-coloured glasses that hinder our ability to see the whole person we’re dining with. 

So by all means, enjoy your romantic day. Feast on that gourmet Italian cuisine, fine wine and luxury chocolates. Just make sure the one who is footing the bill can actually pay it off – or it could foreshadow a lifetime of financial heartache.

The post Avoid financial heartache this Valentine’s Day appeared first on Credit Simple.

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Rewards credit card programs have exploded in recent years, offering everything from flights to merchandise to cash in your pocket. With so many options, it’s important to choose a rewards card that suits your lifestyle and preferences. Here’s how.

What is a rewards credit card?

Rewards credit cards typically work by letting you accumulate a certain number of “points” for every dollar you spend and you can later redeem these points for valuable goods and services like flights, household items or even cash back.

Many cards these days offer rewards from all categories, although it’s common for them to target a particular lifestyle. For example a travel credit card might offer travel and cash-back rewards but offer a better points-to-reward ratio when you use the points for travel.

The difference between rewards cards and perk cards

Don’t confuse rewards with perks like discounted movie tickets or free travel insurance. Rewards cards may contain perks like this, but cards can offer perks without having a points-based rewards system.

What types of rewards cards are there?

Here are the most common types of rewards cards, although many of them will offer rewards from multiple of these categories:

• Travel cards. These cards let you earn points redeemable for travel-related rewards like flights, hotel stays, cab rides, amusement park tickets and airport lounge access.
• Cash-back cards. These cards let you earn points redeemable for cash, usually in the form of a deduction on the balance you owe.
• Shopping cards. These cards let you earn points redeemable for merchandise raging anywhere from sporting goods to appliances to children’s toys.

It’s also possible to find cards that cater to specific hobbies. For example a golf rewards card might let you earn extra points when you use the card at a golf course and/or offer golf-related  rewards at a points discount.

How do you earn points?

There are several ways you can earn points using your rewards credit card:

• Being approved for a card. Some rewards cards will give you a lump sum of points just for signing up and being approved for the card. They may give you the points right away, or only after you have charged a specific amount to the card within a specific timeframe.
• Everyday spending. Most cards issue a certain number of points for every dollar you charge to the card. Some charges may not be eligible for points, for example, balance transfers.
• Spending on specific products and services. Your card may issue additional points, above and beyond the points you get for everyday purchases, when you use the card for specific products and services. For example, a travel card might issue additional points for every dollar you spend on travel-related purchases.

How do you choose the right rewards card for you?

Don’t just apply for the first rewards cards that offer a bunch of points just for signing up. Instead take your time to consider what you want out of a rewards program and how you plan on using your card. Here are some factors to consider:

• Will you pay your balance in full every month? Most rewards cards come with an annual fee, so if you plan on carrying a balance (ie, paying interest), consider skipping the rewards in lieu of a no-annual fee card instead. Otherwise, look for one with a low fee or that offers other valuable perks.
• What rewards are you interested in? Many rewards cards aim to appeal to certain types of people, for example travel cards are aimed at travelers, shopping cards are aimed at people who like to shop and cash back cards are aimed at the frugally minded. You’ll obviously want a card that offers rewards that actually excite you.
• Is there a cap on points? Some cards will limit the number of points you can earn every year. If you plan on using the card a lot, it might be worth seeking out a card with a higher cap or no cap at all.
• How much are points worth? You can make a rough estimate by noting the number of points it takes to get a particular item and then dividing that into the item’s monetary value. You can then use this information to compare the point value on a few different cards.
• How easy is it to redeem points? With some rewards, it might take several steps to redeem your points: for example, a travel card that lets you exchange your points for an airline’s frequent flyer miles, where you’d still have the extra step of redeeming those miles for your flight. If you’re considering a card, find out what the redemption process is and decide if you’re comfortable with it.

Bottom line

A rewards card can be a great way to extract additional value from your credit card, provided that you use the card responsibly and don’t rack up fees and interest charges that cancel out all that added value. Just make sure you choose a card that suits your interests and makes it easy to redeem and enjoy your rewards.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post Choosing a rewards credit card that’s right for you appeared first on Credit Simple.

Comparing credit cards the right way can be rewarding, because there’s a credit card that can cater to almost every lifestyle and financial need.

When you compare, you’ll be looking at everything from interest rates, to reward programs to promotional offers to fees.

Compare credit cards by type of card

Since you probably already know that closing your accounts too often can hurt your credit score, we hope you’ll keep your card for some time. That’s why it’s important to choose the type of card that’s right for you – so you can enjoy its lifestyle benefits for time to come.

Here are the main types of cards:

• Reward credit cards. Cards that let you earn points you can redeem for gift vouchers, merchandise, travel, cash and more. These are great for people who pay off their credit card every month (so as to avoid interest).
• Frequent flyer credit cards. A type of rewards card that works with your airline’s frequent flyer programs to supercharge your points accumulation. These are great for people who fly a lot and who pay off their cards every month.
• Low-rate credit cards. Cards that charge a lower interest rate on purchases compared to most other cards. These are great for people who occasionally carry a balance, such as at Christmas time.
• No annual fee credit cards. Cards that don’t charge a yearly fee just to carry them. These are great for people who don’t use their card a lot or who keep their card mainly for emergencies.

Compare cards by interest rate and fees

Once you know what kind of card you want, you’ll want to find out how much it will cost you. Costs usually come from:

• Interest rate. The percentage your debt or balance will grow per year. Go for a lower interest rate if you think you’ll often carry a balance from one month to the next.
• Fees. These may include annual fees, cash advance fees, international transaction fees, additional cardholder fees and late payment fees. The fewer fees the better, although annual fees are sometimes unavoidable for certain types of cards like rewards cards.

Compare by the promotional offer

Depending on how you want to use the card, you may want to consider any introductory offer that comes with a credit card. Here are some of the most common:

• 0% purchase rate. These cards charge 0% interest on purchases for a limited time, such as 6 months or a year. This might be a good option if you plan to make a lot of purchases at once, such as at Christmas time or before a holiday, and could use a few months to pay it off.
• 0% balance transfer. These cards charge 0% interest, up to a certain amount and for a limited time, on existing debt you transfer over from other cards. These are good for people who want to consolidate debt from multiple cards and have a plan to pay it all off by the end of the promotional period.
• Extra rewards or points. Some rewards cards will offer extra rewards or points just for signing up. For example, a travel card or frequent flyer card could offer a free domestic flight or a rewards card could offer 10,000 free bonus points.
• Waived annual fees. Some cards will temporarily waive the annual fee, such as for the first year.

Compare credit cards by their perks

Many cards will come with additional perks that are also worth keeping your eye out for. These can include:

• Free travel and medical insurance
• 0% foreign transaction fees
• Airport lounge access
• Concierge services
• Purchase protection and extended warranty
• Retail partner discounts
• Hotel status credits
• Event tickets

Bottom line

Conducting your credit card comparison the right way is important for a number of reasons. It can keep you from paying too much for your card and it can ensure that you enjoy valued perks, rewards and lifestyle benefits on an ongoing basis.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post How to compare credit cards the right way appeared first on Credit Simple.

The post Debt consolidation loan vs. balance transfer credit card – which one to choose? appeared first on Credit Simple.

A personal loan is about as straightforward as it gets when it comes to borrowing money. It can help you pay for something special like a car, holiday or home renovations, or to consolidate debt. With a personal loan, you borrow a specific amount and you make regular payments until it’s paid (along with the interest), usually one to five years.

And for a long time personal loans have been in the shadow of credit cards. That’s because credit cards are very good business for banks, and better business than on an old-fashioned personal loan.

If you turned up at the bank to borrow money to renovate your kitchen and took out a personal loan, the deal would usually come to an end when you’d paid back the money. But if the bank gave you a credit card with a permanent line of credit, you might just keep using that credit – renovating the bathroom, taking a holiday – and the bank can charge very high interest rates for that.

So the poor old personal loan sat alone and neglected on the bench.

But things have been changing, and person loans are suddenly in fashion again.

Why? Competition. The internet and automation has made it possible for new personal loan companies to come into the market offering a better deal. They’re online and automated and they don’t cost very much to run.

They don’t need any expensive buildings, they don’t need tellers, they don’t need many staff, they don’t need to hold billions of dollars in capital. That means there’s more competition in the market, with more lenders offering  lower interest rates and small business loans and that all adds up to a more competitive deal for borrowers.

It’s not a great time to be a bank right now, with all the competition from peer-to-peer lenders and no-frills online lenders, but as a customer, your options have probably never been so wide and varied.

So if you’re looking to borrow money – whatever the reason – weigh up the pros and cons of each, and don’t forget to check your offers here on Credit Simple to see what you’re eligible for.

The post Personal loans vs credit cards. What you need to know. appeared first on Credit Simple.

How credit card balance transfers work

If you find yourself in credit card debt, paying a huge amount of interest every month and never making any reduction in the balance because it’s all going in interest, a balance transfer could be your way out. In a way you would be paying off your credit cards with another credit card, but the crucial difference is that the new credit card may come with an interest rate holiday. (After a basic card? Click here to read more.)

This means you can temporarily pause interest while you pay off your credit card debt.

Keep in mind that a balance transfer is not magic. You will still owe the debt, and if you don’t pay it back in a timely manner you will end up paying lots of extra money in the form of interest.

To make it worth your while, you’ll be looking for two things:

1. Low or no fees for balance transfers
2. Introductory zero interest rate

Balance transfers are not usually free. Some issuers charge a percentage fee of the balance as the fee for the transfer, but not always. It’s worth looking for one that’s free.

Most importantly though, for a certain period, somewhere between 12 and  24 months usually, you’ll pay 0% interest. This is your big break, if you use it wisely. The downside is that if you don’t, you could end up with even more debt.

So before you commit to a balance transfer, it’s a really good idea to work out a plan for getting that debt paid off while you’re paying no interest. Otherwise, a year or two on, you’ll be right where you are now. Or worse, if – as some people do – you use the balance transfer to pay off the old card, and then go on using it as well as your new one, and then when your 0% interest period comes to an end, you’re paying high interest on not one but two cards and you’re maxed out on both of them.

Even if you can qualify for a balance transfer offer, consider your plan for paying down the debt before you go ahead. You may be wondering how a balance transfer might affect your credit. Depending on your credit history, it might lower your credit score in the short term, but in the long run, if it means you’re getting on top of things, you might end up in a better position.

Here are some things to consider about the terms and fees.

Make sure you know how long your 0% intro rate will last and make sure you understand all the terms and conditions that apply. Also make sure the rate you apply for is the rate you end up with.

Once you’ve made the balance transfer, make sure you pay off your credit card debt so you can eliminate or avoid interest. You may also want to take a look at your spending habits and avoid accumulating more credit card debt while you’re paying off the balance transfer credit card so you don’t end up in the same situation again. Money Simple can help you with that (click on the tab at the top to access our free spend tracker).

You might set up an automatic payment plan to get the whole  balance paid off before the period ends. And you might want to think about putting both cards away and not using either of them again until you’ve paid the whole debt off.

The key questions to ask are these:

• How long’s the 0% period?
• What’s the ongoing interest rate?
• What does the card’s balance transfer policy say?
• Does it let me you create my own debt payoff plan on an online portal?
• Does it have late fees or penalty rates?

Here are a few more tips to keep in mind with no-fee balance transfer cards.

Sometimes (but not always) you’ll be charged a fee to transfer the debt(s), such as a percentage of the balance being transferred.

There’s usually a balance transfer period, when you’ll pay no interest or a low interest rate. Be mindful of what the interest rate is after the balance transfer period lapses. This should be specified in the offer and the terms and conditions. The balance transfer interest rate can apply to the debt you’ve transferred, to new transactions, or both. Check it.

It can be extremely swift to sort out a balance transfer, but in some cases it can take up to two weeks, so make sure you keep paying your bills in the meantime.

Transferring the balance doesn’t necessarily mean you’ve closed the old account, so contact your former credit provider and make sure it’s sorted.

All in all, a balance transfer credit card can be in your favour, to help you consolidate debts and pay them down. It’s all about how you put it to work.

And keep a watch on your credit score, right here at Credit Simple. You can all see all our credit card offers here. 

The post Credit cards: What is a Low-interest or balance transfer credit card appeared first on Credit Simple.

A friend called me the other day in a panic because he suddenly realised he owed more than $2,000 on his credit card and had no way of paying it off in a reasonable fashion.

“You work in finance,” he said, “what am I supposed to do now?”

First I made him do the calculations to see how much interest he would pay on that $2,000. He’d blown it on dinners, drinks, and a new smartphone he didn’t need, and those items were now going to cost him more than ever. And at 19.95%, paying off the balance was going to be punishing. (He might have cried just a little bit.)

I pointed him towards a balance transfer credit card, which would allow him to transfer his existing debt to another credit card company (or bank) and repay his $2,000 debt at either a very low rate or at 0% interest.

It worked for him, and now he’s paying down his debt at $170 a month so he can wipe the balance within a year.

Sounds good? Here’s what you need to know about balance transfer credit cards:

• • You’ll need to switch banks or credit card companies to get the low/no interest deal on your existing balance. This is so they can have you as a new customer and hopefully establish a long-term relationship with you.

• • You can use the new card to consolidate debts into one payment (such as store cards and multiple credit cards).

• • Sometimes (but not always) you’ll be charged a fee to transfer the debt(s), such as a percentage of the balance being transferred.

• • There’s usually a balance transfer period, when you’ll pay no interest or a low interest rate. Be mindful of what the interest rate is after the balance transfer period lapses. This is all specified in the offer and the terms and conditions.

• • The balance transfer interest rate can apply to the debt you’ve transferred, to new transactions, or both. Check it.

• • It can be extremely swift to sort out a balance transfer, but in some cases it can take up to two weeks, so make sure you keep paying your bills in the meantime.

• • It can be tempting to ‘chase’ balance transfer offers and just keep shifting the balance around. This doesn’t look good on your credit report and it damages your credit score, so try to transfer only once, then pay down the debt.

• • Transferring the balance doesn’t necessarily mean you’ve closed the old account, so contact your former credit provider and make sure it’s sorted.

• Top tip: You can check and compare a raft of balance transfer deals here.  www.canstar.com.au

All in all, a balance transfer credit card can be in your favour, to help you consolidate debts and pay them down. It’s all about how you put it to work.

The post What you need to know about balance transfer credit cards appeared first on Credit Simple.

If you’re considering opening a new credit card, you may worry you’ll overspend and get yourself into trouble.

And understandably so – the Australian Bureau of Statistics reported that the average household debt in Australia is $168,600, and the most common form of debt is credit card debt.

So how can you use a credit card responsibly? Let’s look at the best ways to stay disciplined.

Think of your credit card as a debit card

A great way to stay disciplined with your credit card is to treat it like a debit card. This does not mean that you can pretend your credit limit is your account balance. It means that you should never let your purchases exceed what you have in your checking account.

You should monitor both accounts regularly. Every two weeks or once a month, you should pay off your entire credit card balance with your attached checking account.

You may then be able to take advantage of the cash back or rewards programs connected with your card, and you may not have to worry about racking up debt. The Sydney Morning Herald says that you may be able to get around $200-300 per year in rewards alone.

But be careful with rewards programs. Don’t convince yourself you need to buy something extra just so you can get 5 per cent cash back. Rewards may only benefit you if you make purchases as you would normally.

You may then earn money on your usual spending, whether in cash or in airline points. Sounds pretty great, right?

Give your credit score a boost

Another benefit of credit cards is they can help your credit score. But don’t apply for a lot of cards at once – too many enquiries can impact your score negatively.

If you’re able to keep your credit card balance low, and you make payments on time, the longer you have the card the more it could boost your credit score.

Fraud protection and insurance with credit cards

Credit cards can come with other benefits aside from cash rewards. You can receive (sometimes complimentary) travel insurance through your card company, as well as price and purchase protection insurance, Canstar says.

Most cards also protect you from fraud. Security protections may ensure that suspicious purchases are detected each time a transaction comes through.

So can you be disciplined with credit cards? Consider these benefits. Staying on top of your balance by using your card as a debit card could allow you to take advantage of rewards programs, protections and a credit score boost.

For more information about your credit score or card benefits, get in touch with us at Credit Simple today.

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