What credit's right for you?

Knowing the difference between the types of credit available will help you make the best credit decision for your needs.

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Different types of credit

  • Short-term: You have to pay it back within a few days or months
  • Long-term: You pay it back over a longer period such as 2 – 5 years

3 categories of credit

  • Revolving (such as a credit card)
  • Instalment (such as a term loan)
  • Open (such as a credit facility)

1. Revolving (credit card)

  • You pay interest only on the amount you use
  • You get approved for a set amount (your credit limit)

Why do I need it?

  • Revolving credit is good for taking care of unplanned expenses that may need more money than you have in your emergency savings fund
  • You can earn more interest on your transaction account by keeping your money in it for longer, using your credit card for your daily purchases, and paying it off at the end of every month

How to repay your credit card

  • Minimum payment: Normally 5% of the outstanding balance. You repay a lower amount per month but it takes longer to repay the total outstanding balance, which costs you more in the long run
  • Full balance: You pay the outstanding balance in full every month, so there’s no extra interest on the balance

Tip: Only use your credit card if you know you’ll have the money to pay it off.

2. Instalment (term loan)

  • Achieve a financial goal now and then pay it off, such as buying a car, starting a business or renovating your home

Why do I need it?

  • If you have some money saved towards your dream but not yet enough, a loan can make up the difference

How to repay your term loan

  • Use a debit order to make it easier to keep track of all your payments. Make sure you keep enough money in your account to repay any debit orders you have
  • Make extra payments into your term loan whenever you can. This will help you pay it off quicker, reducing the amount of interest you pay over the term

3. Open (credit facility)

  • There are no monthly instalments
  • The balance must be paid in full every month

Why do I need it?

  • If you don’t have a credit card but need access to money for an unexpected expense

How to repay your credit facility

  • Use a debit order. The full amount will be repaid every month

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