Small Loans – a good option compared to credit cards

Apr 20 2017


Thursday 20th April 2017

Small Loans – a good option compared to credit cards

According to the popular women’s finance website the average credit card interest rate is more than 10 times the official cash rate.

And new research reveals that 79 per cent of Australians or 14.3 million people – are dissatisfied with credit card interest rates, saying they feel “cheated” that rates don’t move in accordance with the RBA cash rate.

This is of particular concern following the recent announcement by the banks peak lobby, the Australian Banking Association (ABA) in response to the independent review of the Banking Code of Practice, to not adopt all the recommendations.

Of the 99 recommendations the ABA says it will only adopt 61 in full.

This excludes the recommendation on credit cards that could save you money - how banks calculate credit card interest charges.

If you spend $1000 on your credit card for the billing period, and you pay back $800 by the due date, you should only need to pay interest on the $200. That seems reasonable, because that's the amount that's overdue. But often that's not what happens. What many customers don't know is that, when they don't repay the full amount on time, many banks charge interest on the whole $1000, even though the $800 was paid on time.

Again, according to a $2,000 debt at 20 per cent interest with a 2 per cent minimum payment will take you more than 40 years to repay and cost you over $5,000 in interest if you only pay the minimum amount.

A Small Amount Credit Contract (SACC) of up to $2000 regulated under the NCCP Act since 2013 offers the best protection to borrowers of any credit products.

The average small loan is now just $770 over 4.4 months and is limited through the caps set by the NCCP act with the maximum interest rate is 4% monthly.

NCPA Chairman Rob Bryant said that for many Australian households the luxury of mainstream financial choices are not readily available for quickly getting access to funds in an emergency.

The provision of financial inclusion options for Australians who don’t want or are unable to access debt through credit cards or from other sources can still have a credit life-line in difficult times.

NCPA members provide an important service that mainstream financial lending institutions don’t provide and are heavily regulated by the federal government.

The NCPA supports the federal government’s further regulation and reforms in 23 of the 24 proposed recommendations and supports the current legislation for recommendation 1. The NCPA is fully committed to continue to work with ASIC to improve consumer protections.

For further information, please contact NCPA Chairman Rob Bryant on 0407 292 295.