Can I use my credit card to pay for a house deposit?

Can I use my credit card to pay for a house deposit?

Buying a property is arguably one of the biggest purchases you’ll make in your lifetime, with the initial deposit costing a fair chunk of anyone’s savings. However, you may be wondering if a credit card is an accepted form of payment for a deposit?

Here is everything you need to know about using a credit card to pay for a house deposit.

Is it possible to pay for a house deposit with a credit card?

Short answer, no. Even if your credit card provider approved this purchase, your home loan lender would see this as a high-risk transaction. This would give them cause to cancel your loan approval. Further, the property sale would likely fall through as, in the settlement period, the real estate agent and seller would have cause to cancel the sale.

Considering that paying for anything with a credit card can lead to defaults on payments and high amounts of debt for the cardholder, this is in the would-be buyers’ best interest.

In fact, here are the most commonly accepted payment methods for house deposits:

  • Personal cheque – one of the modern instances of cheques still being the most favourable payment method is for a house deposit.
  • Counter cheque – If you don’t have a cheque book, you may be able to get a counter cheque from a branch prior to private sale/auction.
  • Electronic funds transfer – Paying your deposit directly to the real estate agent/seller.
  • Deposit bond – typically used when a buyer is awaiting funds from an existing sale, a deposit bond is used instead of cash until settlement - where the deposit is paid in full.

Before you attend an auction or make an offer to a real estate agent, consider asking them what the preferred payment method is.

Credit limits and house deposits

In past years, home loan lenders have been more accepting of new borrowers with smaller deposits – 5 per cent and lower in some cases. However, following the Royal Commission into the Banking Sector and Australian Prudential Regulation Authority crackdown on irresponsible lending practices, the days of tiny deposits for million-dollar mortgages are gone.

Nowadays lenders encourage borrowers to have a deposit of 20 per cent or more. Not only does this showcase a level of financial responsibility on the borrower’s behalf but helps them to avoid paying costly lenders mortgage insurance (LMI). Home loans of 10 per cent are still available, but lenders may be more likely to reward borrowers with higher deposit sizes with lower interest rates too. So, there can be financial incentives to saving a bigger deposit.

Hypothetically speaking, putting a house deposit on a credit card may mean you’re putting $110,537 on your plastic, based on national house prices from CoreLogic in August 2020. Not only would this debt be astronomical for any credit card holder, but the potential interest you might pay could balloon over $400,000, if you only made minimum repayments.

Cost of putting a house deposit on your credit card in Australia

National median house price $552,689

 

20% deposit amount $110,537
First monthly repayment

(16% purchase rate)

$2,244
Total paid in minimum credit card repayments $421,408
Time taken to pay off balance 81 years 7 months

Source: CoreLogic Index Results, August 2020. ASIC credit card calculator.

Note: Figures based on 16 per cent interest rate and cardholder making minimum repayments.

Even if your home loan lender or the real estate agent approved this payment method, and even if you had these funds in your savings, you’d need to consider whether your credit limit would allow this purchase to be approved in the first place.

In fact, most credit cards have maximum credit limits around $100,000. If you’re the type of high-earning Australian who qualifies for a credit card like this, it begs the question: would you need to put a house deposit on a credit card in the first place?

For example, the AMEX Platinum is a charge card with no specific credit limit, but if you don’t pay the balance in full by the end of the month, you’ll be hit with a fee. It also carries an annual fee of $1,450 and requires an income of $100,000 or more.

If you can afford this kind of card, then realistically, you can afford to save for a house deposit.

How can I afford a house deposit then?

It’s no secret that property prices have grown sky-high in the last few decades, with young Aussies struggling to get a foot on the property ladder.

If you’re looking for a means to get a house deposit, you’ll unfortunately have to consider doing so the old-fashioned way. However, here are some helpful tips to boost your savings and get yourself that much closer to nabbing your first property.

RateCity tips for first home buyers:

  1. Dream smaller – you’re not going to be able to afford your dream home the first time around. It’s called a property ladder for a reason, so consider making a smaller step with a more affordable apartment in an up-and-coming suburb first.
  2. Sell your belongings - it’s never been easier to make some extra cash thanks to buy/swap/sell platforms like GumTree or Facebook Marketplace.
  3. Bridesmaid suburbs – similar to shopping smaller, consider looking for property in a bridesmaid suburb, aka a suburb near your ideal suburb that is more affordable.
  4. Choose a better savings account – if your savings account is paying you next to nothing in interest repayments, it may be time to compare your options to see what could give you a better return on your savings.

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Learn more about credit cards

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

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

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.