A credit card provides access to funds up to a certain limit. They’re useful for daily expenses, monthly bills or smaller purchases that you’ll be able to pay off each month. Like personal loans, they’re also a type of unsecured lending.
Credit cards provide great flexibility as they act as a line of credit that you can use as you need. You’re offered a credit limit and can continually spend up to that limit (as long as you pay the required minimum monthly repayment). A minimum credit card limit starts from as low as $500. Unlike a personal loan where you’ve borrowed a fixed amount upfront and that’s all you can spend, you can continue to spend with credit cards up to your available balance. Credit card debt is revolving, and if you’re not careful with your spending, you can spend more than you planned or are able to manage. It’s important to keep your credit card balance to an amount that you can manage and afford to repay. With our budget planner we'll help you do the numbers so you can budget your income successfully.
Let’s say you’re gradually renovating and spreading the cost across a number of months, you could look at paying for the renovations as you go with a credit card (provided you feel confident that you can pay off the money you spend).
Repayments and interest rates
As a general rule, credit cards carry a higher interest rate than personal loans. On your credit card’s due date, you’ll need to make a minimum monthly payment. If you want to avoid paying interest, you need to pay off the card balance in full each month.
Fees and charges
Aside from interest charged, a credit card typically has an annual card fee. There are additional costs for withdrawing cash - a cash advance fee and a cash advance rate (a higher interest rate for withdrawing cash). If you need to withdraw a lot of cash, a personal loan may be a better option as there are no fees to do this.
So what are the benefits of paying with a credit card?
If you’re going to use a credit card for purchases and expenses, it’s best to only spend what you can afford to pay off each month to avoid costly interest charges. Aside from helping with short term cash flow issues throughout the month, or using your credit card to help manage your monthly household expenses, credit cards have other benefits. Many cards come with reward programs that reward you with earning points for each dollar spent on your card. You can accrue points and redeem for flights, accommodation, gift cards and more. Some cards also have travel insurance, extended warranties and purchase protection insurance. Use our compare tool or selector tool to find more information about our NAB credit cards.