Why a PL is probably better for you than CC?
Aussies love credit cards. There are more than 15 million credit cards on issue in Australia. There are far fewer personal loans. Yet personal loans usually have a lower interest rate and have a set term in which they will be paid off. The average personal loan interest rate is almost 6 percentage points lower than the average credit card interest rate.
While credit cards are great for managing spending and cash flow, for large purchases, a personal loan may be a better option than a credit card.
The debt deadline
A big problem with credit cards for many people is that they have no end point. If you are undisciplined or have demands on your finances, you can add to your debt, rather than repay your debt. When you make a big purchase – a car, furniture, appliances or a holiday – it needs to be paid off as quickly as possible or else its cost just keeps rising.
Comparing personal loan vs credit card vs mortgage redraw
If you need to make a big purchase, you probably have three financing options – personal loan, credit card or mortgage redraw.
1) A three-year $10,000 personal loan at an average personal loan interest rate of 11.74 per cent will cost you $1913 in interest, according to Fairfax media.
2) A $10,000 credit card debt, attracting a 17.24 per cent interest rate, will costs $2800 in interest as you pay it off over three years. If you repay the credit card at the minimum monthly repayments, usually 2 per cent of the outstanding balance, the $10,000 debt will cost you $7765 in interest over eight years.
3) The average big bank mortgage is now charging 5.38 per cent, so a $10,000 redraw looks like good value. But the average home loan is for 25 years. if you take 25 years to repay $10,000 at 5.38 per cent, you will end up paying $8209 in interest.
How to get a persona loan
You can apply for most personal loans online. You can compare loans and make a choice about which loans best suit your needs at Infochoice.