Why have credit card rates not decreased in 10 years? Why have credit card rates not decreased in 10 years?
Finance Consumer Coronavirus: What you need to know about credit in a pandemic Updated:

Coronavirus: What you need to know about credit in a pandemic

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As economic uncertainty sparked by coronavirus causes consumer anxiety to intensify, would-be borrowers are being warned of the pitfalls of entering new credit arrangements.

NAB’s quarterly Consumer Anxiety survey released Friday revealed concerns over job security rose steeply to a survey-high 52.3 points, up 5.8 points on the previous quarter.

That number is expected to rise as the survey predates the federal government’s restrictive social distancing measures that led to mass layoffs in the retail and hospitality sectors.

Australians struggling to maintain credit card payments, or who now find themselves on the Coalition’s revamped JobKeeper or JobSeeker payments, have been offered some financial hardship support by lenders.

Others may be tempted into rushing out for new credit.

Mike Laing, CEO of the Australian Retail Credit Association (which oversees the CreditSmart consumer website), said Australians risk damaging their credit score by seeking a loan with an uncertain financial future.

“Most lenders are probably not going to extend additional credit to people that have no means of paying it off,” Mr Laing said.

“Licensed credit providers have an obligation to lend in a responsible manner so they will assess you and look at your kind of income, taking into consideration if you’re a part-time or casual worker with uncertain hours.”

As some consumers face the prospect of rising debt, The New Daily looks at what you need to know, and how different types of credit work.

Essential things to know about credit in the time of coronavirus

Credit cards

NAB became the first major Australian bank to waive late credit card repayment fees and reduce minimum monthly payments for customers experiencing financial hardship.

Commonwealth Bank also said it would refund late fees and interest for the month of March, and could implement further measures once the impact of the federal government’s stimulus measures is realised.

Kate Browne, finder.com.au managing editor, told The New Daily that consumers should be meticulous in assessing their financial situation before entering a new credit card deal.

“Go for a credit card with no fees, a low interest rate and be very disciplined about paying it back,” Ms Browne said.

“Something that people also overlook if they have established debt (on an existing credit card or loan) is a credit card can be a counterintuitive tool.

“If someone has a zero per cent balance transfer card, it allows consumers to move their debt onto that card and not have to pay interest for up to 24 months, in some instances.”

Payday loans

Research from the Consumer Action Law Centre (CALC) found 1.77 million Australian households took on at least one payday loan between April 2016 and July 2019.

While they may offer consumers money fast, CALC discovered many households can accumulate annual interest up to 407.6 per cent through multiple loans.

CALC CEO Gerard Brody told The New Daily that payday loans take an inordinate amount out of a borrower’s income and are designed to cause “misery.”

“They oftentimes take a large chunk of your income on or around your payday, meaning you’re without enough money for the next period, thereby enticing consumers back for another loan,” Mr Brody said.

“And that starts a life and death spiral with very high fees and interest rates of between 200 to 400 per cent.”

Buy-now pay-later

The buy-now pay-later (BNPL) model has boomed in Australia with roughly one in 10 Australians now utilising digital lay-by platforms.

They allow consumers to pay off goods in four interest-free installments (most commonly fortnightly), with the first made at the point of sale.

Over the 2017-18 financial year, the local market contributed $2.18 billion in overall sales.

And following online retailer eBay’s partnership with BNPL provider Afterpay to grant 40,000 SMEs access, cash-stricken Australians may be further tempted to call upon these payment services.

However, some say this ‘instant money’ is a recipe for debt as providers do not conduct credit checks, unlike other established lenders like banks, leaving customers prone to racking up late fees.

Mr Laing said younger consumers should be especially mindful of the impact late repayments can have on their long-term credit history.

“Your buy-now pay-later usage will actually be visible to a future lender, because they take repayments from your bank account or credit card,” Mr Laing said.

“So a lender looking to lend you money for a car loan, mortgage or credit card will look at your statements and question whether you will continue using BNPL providers – and could possibly limit the amount you actually borrow if you say yes.”