Consumers considering the new interest free credit cards launched by the National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA) need to tread carefully and do some research, says a Queensland finance broker.
Borro™ Owner Cara Giovinazzo warned consumers should “not be fooled” by the term interest free as the “true” interest rate as a result of using these new cards can be significantly higher.
Aimed at countering the buy-now-pay-later companies such as AfterPay and Zip Pay, NAB’s ‘StraightUp Card’ offers credit of up to $3,000 with no interest, no late payment fees, and no currency conversion fees. CBA’s Neo Card will hit the market in late 2020 with similar terms and conditions.
“Considering the average credit card charges interest of around 16.78%, you can see the appeal of these two cards from NAB and CBA,” Brisbane-based Ms Giovinazzo said.
“But while an interest-free credit card might sound great in theory, it’s important to look at the potential impact of the monthly fees you are required to pay.
“If you were to spend $1,000 on your card with a $3,000 limit and took 12 months to repay this, you’d be charged $240 in fees, at an effective rate of 41.70%.
“In comparison, if you were to take 12 months to pay $1,000 off a credit card with no annual fee and an interest rate of 15.0%, you’d be charged around $84 in interest.
“The key with these interest free cards is just don’t repay the minimum balance. You need to repay the debt as quickly as possible to avoid accruing debt and interest.”
Ms Giovinazzo said the new interest free cards may be more suitable for people using the cards sporadically.
She said as a result of the economic impact of the COVID-19 pandemic, Australians had actually been significantly reducing their credit card debt.
“The Reserve Bank of Australia has released data showing Australians paid down a total of $5.5 billion in credit card debt since the outbreak of the coronavirus, which is one of the few good things to come out of this pandemic,” she said.
