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Credit and debt

Use credit carefully and choose the right type for you

Page reading time: 5 minutes

Understand how different types of credit work. Find out what to do before you borrow money, and how to manage debt.

Credit is money you borrow from a bank or financial institution. The amount you borrow is debt. The debt that you have generally has either interest or fees (or both) added.

Use the information on this page to:

Borrowing money can affect your credit rating!

Your borrowing activity can affect your credit score. Your credit score is based on things like the amount of money you’ve borrowed, the number of credit applications you’ve made, and whether you pay on time.

In the future, when you apply for a home loan, car loan or any other sort of loan, the lender will look at your credit score as one of the factors in deciding whether they’ll lend to you or not, and at what interest rate.

Types of credit

Here are some of the main types of credit products for everyday purchases. This doesn’t include things like home loans and car loans. If you decide to go into debt, make sure you can afford the repayments — plus any interest and fees.

Credit cards

Credit cards let you pay for things with a tap or a swipe, and shop online. But this convenience has a cost.

According to the Reserve Bank of Australia (RBA), Australians have more than 14 million credit cards and owe around $33 billion on them. Almost $18 billion of that money is accruing interest – and the average credit card interest rate is over 18%.

If you have a credit card, use our credit card calculator to see how much any debt could cost you over time.

Use the credit card calculator

See how much you can save by paying off your card faster.

Buy now pay later

Buy now pay later services, like Afterpay or Zip Pay, let you pay for something in instalments. You might pay every fortnight, instead of paying the full amount upfront.

You don't pay interest on the purchase. Instead, you’re charged fees. It’s easy to overspend or lose track of how much you owe. So, make sure you can afford the repayments.

Interest-free deals

Some stores let you take home an expensive item, like a fridge, before you've paid for it in full.

Fees can add up quickly, and if you don't pay it off within the interest-free period, you'll pa a high interest rate on the outstanding amount.

Read the detail on interest-free deals before you sign up.

Use the Interest-free deal calculator

Work out how much you need to repay each month to avoid paying interest.

Personal loans

If you don't have enough in savings, a personal loan can help you pay for something expensive, like a holiday or some renovations. You repay it with interest over a fixed term, usually between one and seven years.

Use the personal loan calculator

Work out how much a loan will cost you and what your repayments will be.

Rent to buy and consumer leases

A rent to buy offer lets you rent an item, like a laptop, TV or fridge, for a set amount of time. You make regular rental repayments, typically weekly or fortnightly, until the lease ends. At the end of that period, you pay an agreed amount to buy the item. You own the item from start of the period, unless you don't make your payments.

A consumer lease is different to rent to buy. You make rental repayments for a period of time but at the end of the lease, you don't own the item. The company you leased it from does.

Use the rent vs buy calculator

Calculate the total cost of renting and see what you can save by buying outright.

Payday loans

A payday loan is usually the most expensive way to borrow money. With a payday loan, you can borrow up to $2,000 quickly but has a lot of high fees.

Find out about payday loans and what are cheaper ways you can get money fast.

No interest loans (NILs)

If you're on a lower income, a No Interest Loan can help you pay for essential goods and services. You can borrow up to $2,000 to buy things like a fridge, laptop, or car repairs. Or up to $3,000 to pay for a rental bond or rent in advance.

There are no credit checks, and you pay no interest or fees. You only repay what you borrow.

What to do before you borrow

Before and when you sign up for a credit product, like a credit card or loan, follow these five steps.

1. Work out what you can afford to repay

Before you get a credit card or take out a loan, do a budget. This lets you compare your income (money coming in) with your expenses (money going out).

Then work out how much you can afford in repayments.

Keep in mind that your situation may change. For example, your rent might go up or you could have to pay to get your car fixed.

Use the budget planner

Work out how much you can afford to borrow and repay.

2. Get the best deal for you

If you're looking for a car, you don't buy the first one you see. It's the same when you borrow money — you could save money by looking around for the best deal.

Compare products from different banks or credit providers and check what fees they charge. Some options could cost you more, so make sure they're worth it.

3. Know your responsibilities

Before you sign up for a credit product, read the contract. You need to know what you are agreeing to, and how much you'll have to pay back.

If there's something you're not sure about, ask questions. Or get help from family or friends.

4. Manage your credit and debt

Check your bills and statements for the due date, and make sure you pay on or before that date. Try setting a payment reminder in your calendar.

5. Pay as much as you can each month

If you can make repayments higher than the minimum amount each month, you’ll pay off the debt faster. And you'll avoid paying extra interest or late fees.

If you only pay the minimum, you'll pay a lot of interest. It could take years to pay off your debt in full.

Get help with debt

If you're feeling overwhelmed by money or personal issues, you don't have to go it alone. There is help available: