Banks ramp up credit card repayment plans



article header

New research from RateCity shows banks are ramping up credit card repayment plans following the lightening success of Afterpay, with Australia’s biggest bank, Commonwealth also due to launch a repayment offering in coming weeks.

Credit card repayment plans have become a popular option over the last year, with prominent credit card providers such as AMEX, Bankwest, Citibank, ING Direct and Virgin Money all choosing to offer a repayment feature.

Repayment plans allow the cardholder to take a large purchase, a bundle of purchases, or even cash, and repay it in fixed amounts over an agreed period at a reduced interest rate of as little as 0 per cent.

But are they a good idea?

RateCity’s spokesperson, Sally Tindall, said these plans can get people out of a tight financial spot, but needed to be used with extreme caution.

“Credit card repayment plans can help if you need to buy an essential item and don’t have the cash to cover it, but only if you’re diligent about paying back the debt,” she said.

“But credit card repayment plans are riddled with hidden traps, that can trip up even the most discerning user.

“The main problem is when you start skipping repayments. No-one comes after you with a big stick. Instead what they’ll typically do is start applying the standard interest rate on what’s likely to be a significant credit card debt.

“The card provided will also go back to asking for just the minimum repayments, which could see your debt spiral out of control.

“One alternative for big ticket items is to take out a low rate personal loan. They force people to make regular repayments to pay off the debt in full, without the temptation to rack up more debt.

“Buy now, pay later services, such as Afterpay, are another option. With no interest and no upfront fees, it’s a cheap way to secure credit – provided you don’t miss any repayments.

“The problem with Afterpay is that the service is predominantly used for non-essential items. It’s one thing to borrow money to replace a broken fridge or to pay the gas bill, but when it comes to luxury items, we’d recommend people finance it the old fashion way – save up for it,” she said.

Credit card repayment plans – potential traps

  1. Not meeting a repayment, and getting charged the standard purchase rate.
  2. Failing to clear the debt within the repayment period.
  3. Losing your interest free days on purchases you put on a repayment plan.
  4. Paying fees to use the service.

Note: the terms and conditions are different for each card. Not every trap is applicable to each card.

Credit card repayment plans

Bank

Reduced rate

Loan term

Instalment fees

Interest free days?

Fine print

American Express

0%

3, 6 or 12 months

Set-up fee of 2-4%

Yes but not on instalments.

Once you set up a plan, every purchase over the nominated amount will go on to a payment plan and incur a fee. Does not allow extra repayments.

Bankwest

0.00% – 3.99%

3 mths –

6 mths

No

Yes but not on instalments.

No penalty for missing a repayment but any balance owing at the end of the fixed term will be charged at the purchase rate after one month.

Citi

7.90% p.a. to 12.99%

1 – 5 years

No

Yes but not on instalments.

If you miss a repayment the purchase rate will apply. You can make additional repayments but the money will go towards your standard credit card bill first.

ING

9.99%

3 mths –

7 yrs

No

Yes – both instalment and normal purchases

No penalty for missing a repayment but any balance owing at the end of the fixed term will be charged at the purchase rate.

Latitude Financial Go Mastercard

0%

From 3 mths

$25 setup fee and a $4.95 mthly fee

Yes but not on instalments.

Only for purchases at affiliated stores. If the contract is terminated or comes to an end with an outstanding balance it will attract a rate of 29.49%.

Note: selected fine print only. Always read the full terms and conditions before taking out a credit card.

Advertisement

^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

Compare your product with the big 4 banks, or add more products to compare
As seen on