Should you use credit cards or buy-now-pay-later for your Christmas shopping?

Should you use credit cards or buy-now-pay-later for your Christmas shopping?

It’s the time of the year when retail is buzzing and shoppers are spending hundreds, if not thousands, on their Christmas shopping.

Yet many who want to please their friends and family tend to get carried away during the festive season, some buying expensive gifts that they might not be able to afford.

Traditionally, many might have swept all the expenses into a credit card, brushing the thought of any debt repayments until the next year. 

But with the rise of buy-now-pay-later (BNPL) platforms, such as Afterpay and Zip, there are now other options that may also seem attractive.

With so much to buy and only 10 sleeps till Christmas, is it better to use a credit card or BNPL services to fund your shopping? We’ve helped you break down what you need to know, so you can focus on getting your last-minute shopping done.

Should you use a credit card?

For starters, it’s good to know the difference between credit cards and BNPL services. Credit cards are basically a form of unsecured loan, which means credit card holders aren’t putting down any collateral, like a property or car, to secure the loan. This grants lenders the power to take over the asset to cover the debt in the event the loan is defaulted.

Loans from financial providers are never free, but credit card issuers often charge higher interest than regular personal loan lenders because of this lack of security.

But some credit cards allow between 45 and 55 interest-free days, which is the period where you don’t have to pay interest on your purchases. Once this period lapses, you’ll be hit with the standard credit card purchase rate, which can be as high as 20 per cent. If you pay off your debt during the interest-free period, you may not have to worry about paying for more than your purchases.

Or is BNPL the way to go?

Compare this with BNPL services. These companies don’t charge interest, but “late fees” and sometimes other service fees. Because of this, they aren’t classified as credit providers and aren’t regulated by the National Credit Act. This means they’re not legally obliged to perform credit checks to make sure a customer can repay the debt, so there is a higher risk of lending money to people who can’t afford to pay it back.

Looking at Australia’s industry leader Afterpay, while the ASX-listed company doesn’t perform conventional credit checks, they may not allow you to use their service if you have any overdue payments with them. They might also run a pre-authorisation on your nominated credit or debit card as part of their approval process.

Afterpay allows customers to take their purchase home straight away and pay for their purchases over four instalments, due every two weeks. You may need to make a payment at the time of purchase.

If there’s one thing you need to remember, it’s this: fees apply if a payment is late. Afterpay will charge an initial late fee of $10 and if the payment is still unpaid seven days after the due date, the customer will be hit with a further $7 fee.

These late fees are capped, depending on how much your order is. So, it’s a good idea to keep an eye out on the maximum late fees you could be hit with.

Which is better, BNPL or credit cards?

When tossing up between credit cards or BNPL platforms like Afterpay, one thing to look out for is whether the interest from a credit card or the potential late fees from using BNPL would be higher. Make sure to do your research and calculations to find out how you can come out on top.

Another thing to think about is the interest-free period versus the instalment period of the BNPL service you’re considering. While these can differ provider to provider, the average interest-free days for credit cards is 52 days, according to RateCity data.

If comparing this with Afterpay’s staggered fortnightly payment system over four instalments, it’s possible you could have more time to pay back your purchases using a credit card. Regardless, it’s on you to check the fees and features of your own credit card and BNPL.

Both credit cards and BNPL can be handy for those who know they can repay debts in full on time and don’t want to feel the pinch after their Christmas shopping. If you do go ahead with using one or the other, it’s worthwhile doing your research and decide which option is better for you.

3 money tips for Christmas shopping

  • Pay it upfront – If you know you can afford your purchases outright, it may be better to pay for everything upfront to avoid any potential interest or late fees. There is the potential risk you could be slugged with more charges beyond the purchase itself when you use credit cards or BNPL.
  • Have spending limits in place – In simple words, don’t go beyond your means. Be realistic about what you can afford (and if you’re considering credit cards or BNPL, what you can repay). Set your budget for each item or expense and stick to it. And if you’re buying more than one gift, keep those multiple expenses in mind.
  • Plan your Christmas shopping – Do you have an idea of how many people you are buying presents for or what you need to buy for that Christmas lunch you’re organising? Or are you browsing the stores and deciding as you go along? It’s a good idea to plan out what you’re buying, rather than risk an impulse shopping spree.

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Fact Checked -

This article was reviewed by Business & Finance Writer Rachel Wastell before it was published as part of RateCity's Fact Check process.



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Learn more about credit cards

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 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.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

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

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.

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 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.

Does ING increase credit card limits?

You may want to increase your credit card limit for many reasons, such as having access to more spending money. However, if you are using the Orange One credit card issued by ING, you may not be able to do so. 

ING customers can choose a credit limit of their preference when applying for the Orange One credit card. Depending on your financial situation, this limit can be anywhere between $1,000 and $30,000. If you qualify for a Rewards Platinum card, the minimum credit card limit will likely be $6,000. 

Ideally, you should set your credit card limit knowing how much you can afford to repay each month and keep your expenses lower than this level. With most credit cards, you should have the option of requesting a credit card limit increase at a later time, although you will need to qualify for any increase. With an ING credit card, limit increases are out of the question (at the time this was published), which means you may want to apply for a higher credit card limit from the beginning. Remember that you have the option of decreasing your ING credit card limit at a later time.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How to get a free credit card

There's no such thing as a free lunch. All credit cards come with associated costs when used to make purchases, even if it’s simply the cost of making repayments.

However, many lenders offer incentives for customers such as a $0 annual fee or 0 per cent interest on purchases during an introductory period. Additionally, paying off your balance in full during an interest-free period means you could only have to pay back the cost of purchases without interest. You could also be eligible for additional rewards such as cashback during that time, saving you more money.

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.

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. 

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.

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.