Story brought to you by Savvy.
The past few months have been hard for many Australians. Not only has the pandemic forced us to stay at home, miss out on quality time with friends and loved ones, and even skip over important milestones, it has also wreaked havoc on many people's personal finances.
Now, with Christmas just around the corner and restrictions in much of the country eased or lifted, many will be wondering how to make up the short fall in their budget, to make the most of the festive season.
For many this will mean swiping their credit card and worrying about the interest fees later. This can be a trap for a number of reasons.
Here are four good reasons why an online cash loan can be preferable to credit cards in some circumstances when looking to make up your budget short fall.
1 - Credit Cards can have high interest rates...
Credit cards can be dangerous because they tend to have higher interest rates and looser payment periods, both of which are designed to cost you more in time.
For example, a randomly selected major bank - at the time of print - is offering a low rate credit card with an interest rate of 13.24pc. Meanwhile, their low fee card has a rate of 19.74pc.
It is possible however for some cards - from certain lenders - to have interest rates of nearly 25pc!
This can add up to a serious amount in the long term, especially if you're only making the minimum repayments.
2 - That interest free period might not be as long as you think...
While a lot of credit cards have an interest free period (for argument's sake, let's say you have an interest free period of up to 55-Days), this means if you pay back the entire balance of that purchase within that period, you essentially don't accrue any interest.
However, it is important to recognise the operative words in that sentence are "up-to". The way this quite often works is that the "interest free period" is calculated based upon the billing cycle, meaning the later in the billing cycle you purchase, the less days you get.
It is also worth realising that for many people, especially once the interest charges start rolling in, it becomes harder and harder to payback the principle.
This means they could be on the hook, in some cases for decades, paying back interest on their purchases.
3 - When you don't have an end date on your payments, they can go on for a very VERY long time...
One of the biggest issues with credit cards is that they often have a minimum repayment, as opposed to fixed periodic repayments with an aim to recoup the money in a set time frame.
This can seriously distort your perception on how much you owe and how long it will take you to pay off. In fact, once you figure out how much the purchase will actually cost you in the long run, you may figure out it isn't actually worth it.
For example, according to smartmoney.gov.au, if you only pay the minimum repayment on your credit card it can sometimes take you decades to pay off your debt and end up costing triple or even quadruple the amount you borrowed.
Using the government's credit card debt calculator tool - linked here - you can see that if you had $5,000 in credit card debt with an interest rate of 19.75pc, and you made the minimum repayment of $102 in the first month and decreased over time, it would take you 34 years and 9 months to pay the debt off and end up costing you $16,557 in interest!
And this calculation is made without taking any fees or card charges into account.
On the other hand, if you make the same purchases and make a consistent repayment of $250 per month, the same calculator suggests that it should only take you two years to clear your debt and cost $994 in interest.
4 - That's why it is always better to know upfront how much this is going to cost you...
This is the real advantage of an online cash loan, you know how much you are going to owe on the day you are approved.
It is important to distinguish that these are not payday loans, which usually requires the borrower to pay back the loan on their next pay period.
An online cash loan is far more akin to a small personal loan, which is deducted via direct debit or through your paycheque each week.
While they can have high interest rates, the loans provide a structured repayment period - usually of three months to two years - meaning you won't have interest payments dragging on indefinitely.
Online cash loans, can be secured or unsecured and typically range from $500 to $5000.
As the name suggests, the entire process can also be handled using online forms without going through strenuous document checks and income assessments, with approvals taking just minutes at times.
These can be used for everything from paying unexpected bills, medical expenses, last minute travel, or as a stop gap when you have a temporary whole in your budget.
So there you have it...
While it is always advisable to live within your means, when an unexpected expense arises you need to be savvy about how you deal with it.
While credit cards may be the quick, convenient and impulsive way of dealing with them, you need to have repayment strategy.
Otherwise, your new flat screen TV could end up costing you the same amount as your family car. That's why structured repayments of online cash loans may be advantageous.
- Disclaimer: This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. It is suggested that no person should act specifically on the basis of the information contained in this story but should seek appropriate professional advice based upon their own personal circumstances.