What is Credit
Credit is an agreement to pay back money you have borrowed, usually with interest. There are many ways people can access credit and managing credit is one of the major financial challenges families face:
- Credit is widely available. Credit cards, ‘interest free’ loans and hire purchase agreements are all forms of credit
- Just because someone offers credit doesn’t mean you have a capacity to pay
- 'Interest free’ loans are only interest free if you pay off all the money within the set time period
- Interest rates vary depending on who provides the credit. Credit provided ‘at the shop’ may not be the lowest rate of credit you can access
- Some credit arrangements are ‘secured’. This means that if the loan is not repaid, the person lending the money can get their money back by accessing security, such as your house or other belongings. Some credit is ‘unsecured’. In this case the creditor may be able to go to court to get an order for repayment. Either way, creditors can be expected to pursue the available avenues to be repaid
- An individual may legally be responsible for a credit debt even if they didn’t benefit from the money. Eg by guaranteeing a loan for someone else, or co-signing a credit agreement for a partner.
To calculate how long it will take to repay a credit card debt paying only the minimum payment, use ASIC’s credit card repayment calculator
