Types of credit

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 Basic types of credit

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There are many different types of credit. By understanding how each works, you will be able determine which one are best suited to your needs in order to maximise the usefulness of credit, and minimise the interest cost.

Credit cards

  • Let you borrow money from the card issuer on an ongoing basis.
  • You can choose to either repay the amount you borrow in full each month, or repay only part, but be charged interest on the outstanding balance.
  • Unpaid balances are carried over to the following month, together with an interest charge.
  • Debit cards

  • A debit card is not a credit card. It is used like a credit card, but is not a credit card. The card is usually attached to your savings or checking account
  • It allows you to access your account at an ATM or at a retail store when you make a purchase. The amount of purchase is immediately deducted from your savings or checking account.
  • Store cards

  • Credit cards provided by department stores or retailers.
  • Check all details before signing as requirements and guidelines differ for each card.
  • Generally more expensive than traditional credit cards.
  • Personal loans

  • These loans are useful for buying one-off big-ticket items like a computer, a car or even a holiday as well as for consolidating multiple debts into one regular repayment.
  • Helpful for budgeting as you have a regular repayment.
  • 'Interest-free' and 'no repayment' financing

  • This type of credit is often offered by retailers, though the actual lender is often an independent finance company.
  • The deal may sound generous, but unless you can pay the full balance before the interest-free period expires, high interest charges may apply to the unpaid balance.
  • Always read the fine print before signing.


  • Line of credit loans

  • Let you draw on an available amount of credit up to a pre-determined limit.
  • Funds are accessed by cheque and/or ATM card.
  • Interest is only payable on the funds drawn down.
  • Generally lower interest rates than for personal loans or credit cards.
  • Overdraft

  • Lets you borrow money up to a pre-set limit from your bank account.
  • The funds are often accessed by an ATM card or Debit card, through a cheque account or over the counter.


  • Mortgages

  • Generally used to purchase property.
  • Involve large sums of money and they have a longer repayment term ĘC usually twenty years or more.
  • The interest rate on these loans is generally the lowest of any type of credit.
  • Pay day loans

  • Short term loans usually for small sums of just a few hundred dollars.
  • The interest rates are extremely high, so they should be used with caution.

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