Credit Cards vs Personal Loans vs Payday Loans

Credit Cards vs Personal Loans vs Payday Loans

Three of the most popular methods for borrowing a bit of extra cash are credit cards, personal loans and payday loans. Each of these loan types have their share of benefits and drawbacks, making them better suited to different financial circumstances.

Before you sign on any dotted lines, it’s worth getting an idea of what benefits each type of loan can offer, and finding out if there are any pitfalls worth keeping an eye out for:

Credit Cards

  • Useful for small or large borrowing
  • Flexible repayments
  • Option to earn benefits and rewards
  • Interest and fees can build up
  • Less ideal for very large expenses
  • Temptation to borrow more

Young woman on the beach phoning the bank for credit card support

What makes credit cards useful?

A credit card effectively functions as a flexible loan, allowing you to borrow money from a lender up to a predetermined limit. If you keep up to date with your repayments, you’ll always have the option to flash your fantastic piece of plastic to make payments in shops, over the phone, or online, even for international purchases and services.

It’s also possible to use a credit card to get cash advances from the bank, a bit like withdrawing money from your bank account via an ATM, though there are often extra costs involved.

Depending on your credit card provider, you may also be eligible to earn additional rewards and benefits by using your credit card, such as free travel insurance, or bonus points that can be redeemed at selected retailers.

How can you apply for a credit card?

Many lenders offer credit cards, ranging from major banks to independent credit providers. To apply, you’ll need some identification and evidence of income, to prove that you’ll be able to pay back any money you borrow from the lender. Your lender will also check our credit history, to determine the level of risk involved in lending to you.

What are the costs of a credit card?

Many lenders charge annual fees on their credit cards, as well as interest. Interest rates for credit cards tend to be on the high side, though depending on how you use your card, you may not always be charged for interest. 

Many credit cards come with a monthly interest-free period on purchases. If you make a purchase on your credit card as long as you repay this amount before the month’s interest-free period ends, you won’t be charged interest on the purchase. But if an amount is left outstanding, interest will be charged on this remainder, and you’ll lose the interest-free benefit for the next month until the card is full paid off.


Vlad has a credit card with a 45 day interest free period and a monthly billing cycle. He uses it to buy a new smartphone on the 1st of January. He has until the 14th of February (45 days from 1 Jan) to pay back the lender for his phone, or he’ll be charged interest on what he owes for January and lose the interest-free period for February.

Towards the end of January, Vlad want to replace his washing machine. He could use his credit card to buy a new one on the 31st of January, the last day of his billing cycle. However, because the interest-free period is calculated from the START of the billing cycle (e.g. 45 days from 1 Jan), he’ll need to pay back the value of his new washer to his lender by 14 Feb, just like his new smartphone, if he wants to avoid being charged interest on both his January and February purchases.

Vlad delays his washing machine purchase until 1 Feb, giving him until 17 March (45 days from the start of the new credit card billing cycle) to make his repayments and avoid interest charges.

What are the risks of a credit card?

Unlike many other types of loan, where you borrow a set amount of money then make steady progress towards getting this amount paid back plus interest by a certain date, credit cards tend to be a lot more flexible, which can be a problem as well as a benefit.

While you’re encouraged to fully repay your credit card each month, many lenders typically only require that you make a minimum repayment for a small percentage (often just 2%) of the outstanding balance you owe, plus interest charges. If you only make these minimum repayments, you’ll VERY slowly make progress towards clearing your debt, but you’ll likely end up paying a LOT of extra interest charges to your lender.

Also, because a credit card effectively functions as an open-ended loan, even if you’re already struggling to manage your repayments, you may still be tempted to borrow even more money. This could lead to you losing  and previous progress made towards repaying your loan, and getting you closer to being trapped in a cycle of inescapable debt.

Personal Loans

  • Good for making large purchases
  • Can consolidate other debt
  • Fixed borrowing keeps repayments manageable
  • Less flexible, fewer options
  • Risk of losing security
  • Extra fees could apply


What makes personal loans useful?

Personal loans are structured differently to credit cards or lines of credit. Rather than offering the flexibility to borrow any amount of money up to a fixed limit, and to then repay what you borrow as you go, personal loans involve borrowing a fixed sum of money that you receive from the lender up front, then making regular repayments over a set term to make sure that this amount ens up fully paid back to your lender, plus interest, on time.

This makes personal loans more useful for making large single purchases, such as buying a car, starting up a business, or paying for a dream wedding. They can also be used to consolidate multiple smaller debts (e.g. credit cards, payday loans) into a single, easy to manage loan, so you’ll only need to make the one repayment per month, and only be charged interest the once per month.

Because you can’t typically borrow more money and increase your level of debt with a personal loan, you should be able to make steady progress towards paying back what you owe, with less risk of ending up trapped in a bad financial position.

How to apply for a personal loan

Personal loans are available from a selection of banks and non-bank lenders, including some lenders that specialise in providing personal loans for borrowers with special needs, such as nonconforming personal loans for borrowers with bad credit.

Much like applying for a credit card, when you apply for a personal loan you’ll need to provide your personal details, plus evidence that you’ll be able to manage your loan repayments. Your lender will also check your credit history to determine the risk of lending to you.

Depending on the type of personal loan you apply for, you may also need to provide security to guarantee the sum you’re borrowing. For example, many car loans are guaranteed by the value of the car you’re buying, so if you don’t make your repayments, your vehicle will be repossessed and sold by the lender to cover its losses.


What are the costs of a personal loan?

Personal loans typically involve paying interest on the money you borrow, either at a fixed or variable rate. Fixed rates guarantee consistent repayments for the full term of the loan, for simpler budgeting, while variable rate loans usually offer greater flexibility, and may let you enjoy reduced repayments if your lender cuts its rates.  You may also need to pay establishment and/or ongoing fees on your personal loan.

The length of your personal loan term will make an impact on how much it will ultimately cost you in terms of interest and possibly fees. The shorter your loan term, the more expensive your monthly repayments will be, though you’ll pay less in interest and ultimately pay off your loan sooner. A longer loan term can make your monthly repayments more affordable, though the total interest and fees you’ll have paid by the end of your loan may be significantly higher. Some personal loans (often those with variable interest rates) include flexible features such as offset accounts and redraw facilities that provide extra options for managing your loan repayments, which may help you to reduce some of your interest costs in the right circumstances.

What are the risks of a personal loan?

Because personal loans need to be organised in advance, it’s usually straightforward for borrowers to work out whether they can afford the repayments before they sign on the dotted line. 

If your personal loan has a variable interest rate, there is a risk that the rate could rise, making your loan repayments more expensive. In such a case, you may need to consider the options for refinancing your personal loan, whether with your current lender or a different one.

The greatest risk to keep in mind when you take out a personal loan is being stung with surprise fees, which (depending on your lender) may be charged if you choose to exercise some of your loan’s optional features. You may also be charged penalty fees if you make extra repayments or complete your loan early, to make up for the interest charges the lender will miss out on.

Also, if you opt for a secured personal loan and don’t keep up with your repayments, you may risk losing your security asset, whether that’s your car, your property, or even just a bank deposit.

Payday Loans

  • Fast cash in a pinch
  • Handy for small purchases
  • Simple to apply for
  • Interest + fees add up quickly
  • Temptation to borrow more
  • Tough penalties for defaults


Why are payday loans useful?

The typical example scenario for a payday loan goes something like this:


Janice’s family fridge has broken down, right in the middle of a summer heatwave. She needs a new replacement right now, but all the money from her last payday has already been accounted for, covering bills and life’s other expenses. She’d easily be able to afford a replacement in a month’s time, but that’s not going to save the rapidly-defrosting food she needs to feed her family right now!

By approaching a payday lender, Janice can get a small loan approved in a matter of minutes, allowing her to pick up a new fridge that very day and rescue her melting ice cream. When Janice’s next payday arrives, she can pay back the loan, plus any fees and charges, and get on with her life.

How to apply for a payday loan:

Most payday lenders can be quickly contacted by phone or online to make an application. This application is usually faster and less involved than the process of applying for a credit card or a personal loan, though you’ll still need to provide your personal details and some evidence of income to show that you’ll be able to afford to pay the lender back. 

Your payday lender will then confirm your details and perform a credit check. Payday lenders tend to be more flexible around bad credit than many larger lending organisations, but if your credit history clearly shows major financial problems, your application may be declined. 

Once your payday loan application has been approved, you’ll often be able to receive your funds very quickly, sometimes literally within a matter of minutes. 

What are the costs of payday loans?

Unlike credit cards and personal loans, payday loans don’t charge interest on the amount you borrow – only fees. However, these fees are usually listed in percentages, based on the amount you owe, similar to interest rates. 

Current Australian government legislation requires that establishment fees charged at the start of a payday loan can only total up to 20% of the loan principal (e.g. for a $600 loan, there can be a maximum establishment fee of $120). On top of this, the monthly ongoing fees can only total a maximum of 4% (e.g. for a $600 loan, the ongoing fee can be a maximum of $24 per month). Payday loans tend to have fairly short terms, often ranging from as little as 2 weeks to as much as 12 months.

What are the risks of payday loans?

Payday loans provide fast and simple access to money, which can prove very tempting to people who are already experiencing financial stress, and are thus the most vulnerable to extra costs, fees and charges. Even if you only borrow a small amount of money from a payday lender, if your finances are already tight, there’s a big risk of ending up in more debt that you can realistically handle if you’re not careful, or if you experience some bad luck (e.g. having to pay for car repairs after you’ve already taken out a loan for your new fridge). It just takes one missed repayment to find yourself slapped with steep penalty fees, which can quickly add up, leaving you in real financial trouble.

The best precaution when thinking about payday loans is to take some extra time to look carefully at all the terms and conditions involved, work out a budget to see if you’ll be able to realistically afford the extra fees and charges, and decide whether you think these extra costs will be worth it. Taking this extra time to consider your options may mean you won’t get your hands on that money quite as fast as simply applying for a payday loan, but avoiding the extra risk of ending up with problem debt is often worth it. 

Also, try to avoid using payday loans as a “stopgap” solution for managing repayments on larger debts, such as overdue credit cards or personal loans. Borrowing more money could allow you to avoid a late repayment now, but won’t fix the root problem, and could leave you in even more debt trouble further down the line.

If you ever find yourself struggling with any loan repayments, contact your lender to find out your available options. Alternatively, contact MoneySmart for free financial counselling, or call Australia’s National Debt Helpline on 1800 007 007.

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Learn more about credit cards

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

What is the CUA credit card increase limit process?

A credit limit is pre-assigned based on factors like your income, expenses, and debt by the card-issuing company. It varies from time to time based on credit utilisation and changes to your circumstances.

If your income has increased or your liabilities have reduced, you can request for an increase of your CUA credit card limit. You can lodge the request via online banking on the website, or by visiting the closest branch, or by downloading the application form and mailing it. While making the application, you may need to provide information about your income, employment status, desired limit, and the reason for the increase. The card-issuing company will assess your request before approval.

Before you apply for an increase to the credit limit, ensure your bills are paid in full and you aren’t asking for a very steep enhancement.

Do I get HSBC credit card insurance on purchases I make?

As an HSBC credit card (HSBC Platinum, HSBC Platinum Qantas and HSBC Premier World) cardholder, you may be entitled to complimentary international and domestic travel insurance. This HSBC credit card insurance covers you for hospital stays and medical expenses, flight cancellations or delays, as well as lost luggage or personal items.

To be eligible for the insurance, you should have paid for at least 90 per cent of your overseas return travel ticket with your HSBC credit card. The cover is automatically activated without a need to contact HSBC. However, it’s always best to let your card issuer know when you travel overseas. If you have pre-existing medical conditions, you’ll need to contact Allianz directly to organise cover for these as they aren’t covered by the insurance. You can call Allianz on 1800 648 093.

The complimentary international travel insurance that comes with your HSBC Platinum credit card is valid for up to four months from the date of your departure from Australia. Your HSBC credit card insurance cover also covers your spouse and dependent children if 90 per cent of their travel ticket is purchased using your HSBC card.


How to increase my Commonwealth credit card limit?

Commonwealth Bank credit cards are extremely popular in Australia for everyday purchases and big ticket items alikers. A number of the card’s functions can be customised, depending on your needs and desires. If you wish to increase your Commonwealth credit card limit using the CommBank, you can usually do so on the app or via NetBank.

In the CommBank app, tap on the ‘Cards’ icon and choose your credit card. Then, click on ‘Credit Limit’ and select the ‘Increasing your limit’ option. If you don’t have the CommBank app, you can also increase your Commonwealth Bank credit card limit through NetBank. Simply log on and go to Settings, then click on ‘Product Requests’ and then choose ‘Credit Card Limit Changes’. 

Once the bank has received your application, they will review your account and payment history. Based on this assessment, your application will either be approved or denied. If approved, your new limit will be applied to your card instantly. 

While increasing your credit card limit may be an easy process, it’s important to remember that you should only request limits that you can manage. A high limit increases the risk of having a larger debt, even with cards that provide low-interest rate options. So, it’s important to think carefully and seek advice from people you trust before increasing your Commonwealth Bank credit card limit.

How can I increase my credit card limit on my American Express card?

If you want to increase the credit limit on your American Express (AMEX) credit card, you will need to apply through the AMEX Online Services, or by calling the number on the back of your card. You may need to share personal information that the bank can use to assess whether the requested limit is suitable for you and your current financial status. Once your application is approved, your new limit will be ready for use within an hour.

What does Westpac credit card insurance cover?

If you own a Westpac credit card, one of the perks may be  free travel insurance. If you’re eligible, you may be covered if you get sick while travelling, have lost your luggage, have to cancel a trip or have an accident while you’re on the move.

Besides these standard inclusions, the Westpac credit card insurance policy may also cover you for hospital essentials, emergency dental treatment and alternative transport if your original plans go awry. It may also cover loss of income when you get back home after being sick  overseas and your pets’ boarding costs too.

If you have any queries, the Westpac credit card insurance contact number is 1800 091 710. You can submit a claim online.


How to increase your Qantas Premier credit card limit

When your income or spending habits change, you might wish to increase your credit card limit. The Qantas Premier credit card allows you to do this over the phone. You can contact Qantas Premier Card Support by calling on 1300 992 700. Unlike some other credit providers, Qantas doesn’t give you the option to increase your limit online.

Qantas will only accept your application if you have a good history of repayment and have not increased your credit or bought another credit product from Qantas in the past six months.

Before approving your Qantas Premier credit card limit increase, Qantas will perform a credit assessment on your current financial circumstances and ask why you would like to increase your credit limit.

To ensure that there are no bumps in your application process, you must provide accurate and recent information about your financial situation. You should also account for any future changes you’re anticipating which could hinder your ability to repay the loan.

Once the assessment is complete, Qantas will either approve or deny your application. If they approve it, you will need to sign a credit limit increase agreement - and you can request a written copy of the credit assessment. However, if your application is rejected, Qantas can opt not to provide a copy of the assessment.

Can I transfer money from my American Express credit card to my bank account?

If you’re an American Express credit card customer, you may not be able to transfer money from your credit card to your bank account. However, you may be eligible for cash advances, which involves withdrawing money through an ATM. 

To qualify for a cash advance, you’ll likely have to enrol for American Express Membership Rewards. Consider checking your online credit card account to see if you can withdraw a cash advance and, if so, the fees and charges you’ll incur for this transaction. 

You should remember that cash advances are different from balance transfers, which were available with some American Express credit cards earlier. Balance transfers allow customers to consolidate debt from high-interest credit cards to a credit card offering a lower interest rate. If you only recently applied for an American Express credit card, balance transfers may not be available irrespective of the card you own. 

Increase your credit card limit with Westpac

You can apply to increase your Westpac credit card credit limit at any time, and most credit card providers have made it really easy to do so. You can use your online banking portal, the credit card provider’s mobile app, or even the telephone. 

Applying online to increase your credit limit with Westpac is the easiest option if you’ve already activated Westpac Live Online Banking. All you need to do is fill in the required information and then hit ‘submit’ to apply for an increase in your credit card limit.

Most banks will ask for details of your financial situation at the time of applying for a credit increase. This is done to ensure your new limit meets the lender’s criteria. 

You can apply for increasing your credit limit in any of the following ways:

  1. Visiting your nearest Westpac branch
  2. Calling Westpac on 1300 651 089
  3. Logging in on Westpac Live Online Banking

How to increase the NAB credit card limit?

If you use your NAB credit card regularly, you could consider requesting a higher credit limit. The good news is that it's fairly easy to do so using either the NAB app or NAB internet banking. 

NAB app: 

  • Step 1: Download the latest version of the NAB app.
  • Step 2: Select the ‘My Cards’ menu. 
  • Step 3: Select the card you want to increase the credit limit for. 
  • Step 4: Select ‘Usage Controls’ and then click on ‘Change Credit Limit’.

NAB internet banking: 

  • Step 1: Log into your account. 
  • Step 2: Choose the ‘My Cards’ menu. 
  • Step 3: Choose the card for which you want to increase the limit. 
  • Step 4: Choose ‘Change My Credit Card Limit’.  

If you don’t have the NAB app or cannot access NAB internet banking, you can even visit your local branch or call their contact center. 

Once you’ve applied to increase your NAB credit card limit, you’re likely to be asked for your

  • current employment details  
  • total income, before and after-tax deductions  
  • assets, liabilities, and expenses information

NAB will then assess this information to determine if your current financial situation suits the increased credit limit request, and your application will either be accepted or denied.

However, this process will only work if you’re attempting to increase your personal NAB credit card limit. For a business credit card, you can contact the NAB Corporate & Business Servicing team or speak to your NAB relationship manager. 

How can I increase my Bankwest credit card limit?

When you apply for a Bankwest credit card, you get assigned a pre-set credit limit, which will end up being the most that you can spend on your credit card before having to pay it off. Your credit limit is chosen for you and your current financial situation, and you should remember not to overspend, irrespective of the limit, in order to avoid racking up a massive bill.

However, banks and lenders understand that your needs will change, and have made it possible for you to increase your credit card limit, allowing you to get extra cash when you need it most. Moreover, with a higher spending limit, you may be able to get access to certain perks and benefits with your Bankwest credit card.

To increase your Bankwest credit card limit, you can visit any of the bank’s branches or call 13 17 19 and follow the steps outlined.

What does ANZ credit card insurance cover?

ANZ offers complimentary insurance on some of its credit cards, which can provide some protection against unforeseeable incidents, like the theft of your card. Depending on the type of credit card you own, you may be eligible for different insurances. For instance, most ANZ credit card customers may qualify for Purchase Protection Insurance and Extended Warranty Insurance. Customers who own premium credit cards may also be eligible for Guaranteed Pricing, Rental Vehicle Excess, International Travel, and so on.

Consider checking your ANZ credit card insurance features listed in the Insurance Policy Information booklet to know which items are covered. Also, while ANZ issued the credit card, they are not the insurer. For this reason, you may need to send your insurance claims - and get your ANZ credit card insurance refund - to the insurance provider.

How do I apply for a BOQ credit card limit increase?

If you’re an existing BOQ customer, you can request a BOQ credit card limit increase over a phone call. However, you should remember that owning and using a credit card is a matter of financial responsibility, so it might be worth thinking this decision through. 

When requesting a credit card limit increase, you’ll need to be just as responsible in terms of how much you earn and can set aside to repay the outstanding card balance. A credit card company may approve a credit limit increase only if you can show that you have either the income or the disposable income, which is the amount you have left after all expenses have been paid out.

For this purpose, you may need to submit your latest income documents and bank statements for an increase. You may want to estimate how much you usually have left after deducting your expenses, and then use this amount to try and convince the credit card company. Also, you may prefer to pay off the card balance in full each month and thus avoid paying interest on the card, helping you back up any claims of financial responsibility, as well. 

Remember that you may not be able to apply for a credit card limit increase beyond any limitations on the type of card you own. For instance, if you own a card whose ceiling is $10,000, and your current limit is $5,000, you won't likely be able to apply for a $10,000 credit card limit increase.

How does ANZ increase my credit card limit?

If you’re the primary cardholder on an ANZ credit card, you can increase your credit limit by logging into your credit card account and choosing the “Increase your credit limit” option. You can also submit an ANZ credit card limit increase application form by visiting any ANZ branch or by mail or fax. When completing the form, it's important to remember to specify how much you want the limit increased. You can estimate this by first calculating the amount of credit card debt you can afford to repay based on your income and expenses, and then declaring that in your application. 

Irrespective of whether you’re completing your ANZ credit card limit increase application online or in print, you’ll need to provide updated employment information, income, and expenses, which the company will have to verify. You'll also need to authorise ANZ’s access to your credit history, as your current credit score and recent credit history tell the company about your financial responsibility, and whether or not you'll be able to repay the additional debt you’re applying for. 

In some cases, ANZ may ask you for additional information, or the agent processing the application may reach out to you after your application is received. After verifying your credit score as well as your personal and financial information, however, ANZ may approve a credit card limit increase proportionate to your repaying ability, though it may not be the same as the increase you requested.