Credit Cards vs Personal Loans
The rising interest rates for home loans in Australia has made low interest credit cards a viable alternative to personal loans. Unlike personal loans, there are no penalties for customers who pay off credit card balances early and the interest rates on personal loans have risen to levels that make credit cards more competitive, especially cards offering low interest rates and annual fees. While credit cards can’t be used to finance a home they can be used to finance home improvements and repairs. Where once homeowners might have taken out a home equity loan, many are now paying for these items on credit cards.
One advantage of credit cards is they offer more flexibility in repayment options. If an emergency crops up, borrowers can make a minimum repayment for a month or two and if they have a windfall they can repay as much of the loan as they wish without being penalized. With mortgage and loan interest rates at their current level, this flexibility is tipping the scales in favor of credit card borrowing for large purchases.
By shopping around, consumers in Australia can find credit cards with interest rates below 13% and annual fees of less than $60.00. Since credit cards have no exit fees, borrowers can choose to repay the loan at whatever rate is comfortable for them. If a borrower only needs a short term loan, he may find that a low interest credit card offers better repayment terms than a bank loan.
There is a move by both government and banks to reduce or eliminate exit fees which might make bank loans more attractive to borrowers. NAB was the first to cut fees and was followed by the other major banks. Still, it is easier for most consumers to get approved for a credit card than for a bank loan and as long as interest rates continue at their present levels, credit cards will remain competitive as an alternative to personal loans.
With a predicted rise in interest rates on the horizon, credit cards are likely to remain a popular alternative to personal loans since many home loans have variable interest rates while credit card rates are usually fixed for at least one year after the card is approved. If borrowers are unable to obtain a fixed rate loan, they are likely to turn to credit cards as an attractive alternative.
John Farms says:
May 7th, 2011 at 7:54 pm
This is certainly an interesting development in the financial realm. I hope the credit card interest rates fall some more.
C Paul says:
May 10th, 2011 at 11:47 am
Thanks for the tip, this makes sense to me and I’ll now shop around for a low rate card to refinance my personal loan instead of the other way around.
Alexander says:
May 16th, 2011 at 8:16 pm
Thanks for the info, will think twice next time i buy something with a credit card
james says:
June 27th, 2011 at 7:49 pm
i think credit cards are useful, but over time as the interest rate accumulates we have go to be very careful. Credit cards are definitely going to remain a popular choice.