Credit involves the deferral of payment of a debt. Buying on credit is not free: the consumer pays interest and fees on the money borrowed as well as the original purchase price. In recent years the use of credit to obtain consumer goods and services has dramatically increased.
Credit can be provided in a variety of forms such as:
- continuing credit contracts (credit cards)
- contracts for the sale of goods or services where payment is made by instalment
- loans (e.g. housing loans, personal loans, fixed term loans)
- consumer leases (where goods are rented, but the consumer does not necessarily own the goods at the end of the contract)
Credit can be provided from a variety of sources:
- building society
- credit unions
- finance companies
The advantage of using credit is that the consumer is able to use the goods or services when they do not have available cash. Whilst the increased availability and flexibility of credit increases consumer choice comparisons between the various forms can be difficult and problems often occur.
The prudent consumer should take several steps to avoid problems. Consider whether the purchase needs to be made on credit at all. If cash is not available consider using lay-by as a cheaper alternative. Buying on credit should be treated like any other purchase and it is wise to shop around.
Important information to consider:
- the rate of interest
- whether the rate is fixed or flexible
- any other charges or fees
- how the repayments are to be made
- whether security is required for the credit and if so what form of credit
- the term of the loan
- the amount of the instalments
- the total amount that has to be repaid compared with the cash price
- penalty fees and default charges.
For further detailed information about different types of credit problems and possible solutions for consumers, see www.moneysmart.gov.au
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.