When we’re low on cash and want to buy something, it can be very tempting to borrow money. But before you use your credit card, take out a loan or borrow from the store, make sure you know how much it will really cost you.
Borrowing money is a risky thing to do. If you don’t pay cash you’ll probably end up paying more.
- Pay on time every time to avoid late fees.
- Keep your paperwork in a safe place.
Before you ask for credit
Some steps to take:
- Ask yourself if you really need whatever you plan to buy right away. Can you save up instead?
- Ask yourself if you can afford to make the repayments.
- Shop around for the best deal.
- Find out the terms of the credit before you sign. These will be things like fees and charges, interest rate and repayments.
- Find out if they make you offer security. Security is something valuable that you own, like your car. If you can’t make your repayments, the lender can take this item away from you.
- Make sure you check the ‘fine print’. These are conditions or fees usually written in small writing on the contract.
The Australian Securities and Investments Commission’s MoneySmart website provides tips and resources for Aboriginal and Torres Strait Islander peoples.
After you get credit
- Make sure you get a copy of the contract
- Read all your statements (loan, credit or savings accounts) and check the information is right.
If anything’s not right, question it.
If something changes in your life
Sometimes, life throws a big change at you. These changes might make it hard to repay what you owe.
This might happen if:
- you lose your job
- you get very sick.
Some lenders will make a new arrangement with you in these situations. You will need to let them know as soon as you can.
Interest-free deals can help you buy household goods in a hurry. Remember:
- Interest-free deals usually only cover a short time.
- After that, the lender usually charges a lot of interest on any money you still owe.
- Fees and charges can still apply during the interest-free period.
The best thing to do is pay off as much as you can during the interest-free period. If you pay off the whole lot, then you won’t have to pay any interest at all. Make a plan of how much you will need to repay each pay day and try to stick to it.
Don’t take the risk!
Read the fine print.
Harry and Lola wanted a new boat for their mob to go fishing. They found a bloke in town who offered on-the-spot loans within the hour. They signed his contract right away and borrowed $2,000.
A month later, Harry and Lola got their first loan statement. They found out they were paying 35% interest and some unexpected fees. Lola did some research and learned that the other lenders in town didn’t cost anywhere near that high. They were paying way more than they needed. But they had already signed a contract.
Harry and Lola now have the boat, but they’re also stuck with huge interest payments. They could have avoided that by shopping around, asking questions and reading the fine print on the contract.