NAB launches Australia’s first interest-free credit card

NAB launches Australia’s first interest-free credit card

NAB has rolled out Australia’s first no-interest credit card to hit back at buy now pay later (BNPL) services.

While users will not incur interest on expenses put on the bank’s new credit card, StraightUp, a flat monthly fee of up to $20 will be charged for a maximum credit limit of $3,000.

If the customer does not use the card within the month, the monthly fee is not charged. Users may also avoid some usual credit card costs, including late payment fees and foreign currency fees.

The average purchase rate charged by credit cards on RateCity’s database is 16.78 per cent, while the average annual fee and late payment fee is $115 and $20 respectively.

The StraightUp card does not allow cash advances or gambling transactions.

Higher minimum monthly repayments

Despite the lower credit limits, the interest-free card requires customers to make higher monthly repayments, which also includes the monthly fee, than NAB’s low-rate and low-fee credit cards. However, the higher minimum repayments mean users can generally pay off their balance faster, and in turn pay less fees incurred over the long run.

  • A credit card’s minimum repayment is the minimum amount a customer needs to pay off their balance, or what they owe. Usually, this is a percentage of the balance owed. Customers still incur interest charges by making minimum repayments, meaning the balance continues to accumulate interest until the entire debt is paid off.

According to RateCity analysis, if a credit card user spent the maximum credit limit of $3,000 on their StraightUp card and made only the minimum repayments each month, it could take them two years and nine months for them to pay off the debt.

But for someone on the same credit limit using NAB’s low-fee credit card, which charges 19.74 per cent interest and $30 a year in fees, they could be paying off the debt for nearly 42 years if they only made minimum monthly repayments.

This means a StraightUp card user could potentially become debt-free up to about 39 years faster than if they used NAB’s traditional low-fee credit card.

  $1,000 credit limit $2,000 credit limit $3,000 credit limit
NAB StraightUp card       
Total fees $400 $510 $680
Total interest Nil Nil Nil
Time to pay off balance 3 years and 3 months 2 years and 9 months 2 years and 9 months
Max min monthly repayment $35 $75 $110
NAB low-fee card (rate: 19.74%, fee: $30p.a.)      
Total fees $210 $900 $1,260
Total interest $859 $7,588 $13,323
Time to pay off balance 6 years and 11 months 29 years and 11 months 41 years and 9 months
Max min monthly repayment (2%) $25 $41 $62

Source: RateCity.

Personal credit moving with the times

Australians are ditching the plastic, with about 1.4 million fewer credit card accounts than a year ago, the latest figures from the Reserve Bank of Australia (RBA) showed.

The decline has been happening since the start of 2018 with no sign of turning around and credit card providers are taking note, according to Sally Tindall, research director at RateCity.

“Australians’ love affair with credit cards is starting to wane and the banks are doing everything they can to reignite the flame,” she said.

She said credit card companies are also responding as customers turn to BNPL services, which has been seeing “exponential growth”.

“Even the big players in the credit card space, such as CBA and now NAB, have made moves into this arena, knowing that credit cards are no longer kingpin of credit.”

But credit can be problematic for the less disciplined spenders.

“One of the biggest problems with credit – whether it’s a credit card or a buy now pay later service – is that it can encourage people to impulse buy, which can blow a hole in the best laid savings plans,” Ms Tindall said.

NAB’s group executive for personal banking, Rachel Slade, said the interest-free card has turned the idea of credit on its head.

“Credit cards have not really evolved in recent years. But our customers’ needs and expectations are changing and we want to change with them,” she said.

Ms Slade noted that the bank is responding to a rising demand for more flexible credit options that give people more control over their finances.

“StraightUp’s range of features means it is the simplest credit card offering in the market. And with many safeguards in place it can really help customers take control of their spending,” she said.

Eleven credit card providers on RateCity’s database offer some form of payment instalment plan for some of their customers.

Customers can apply for NAB’s StraightUp card from September 10th.

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Learn more about credit cards

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 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.

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.

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 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.

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. 

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 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 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.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

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 does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.