Jump to content

Confused at this outcome!
CC V Personal Loan


  • Please log in to reply
16 replies to this topic

#1 tweedy08

Posted 07 December 2012 - 09:56 AM

So my daughter has just finished school and has been working part time for the last 4 years. She needed some repairs done on her car and was contemplating getting a loan and buying a new car.

Anyhow, after a lot of contemplation I agreed with her that she should get her current car repaired since the repairs are around $2k to get fixed (probably less if she shops around). I just didnt want her having the large repayment responsibility of a car loan just yet and we are not in a financial position to lend her the money unfortunately.

So we went into her bank and they suggested definitely a personal loan. The minimum amount on that was $4k, That was fine since she could just pay $2k straight back onto the loan and get her repairs done. So we do the application and it comes back declined due to her income. She gets at least $350 in the hand a week and has no expenses. The lady says that she cant understand why it was declined since the repayments would be $109 per month. So she said to apply for a credit card and then get the repairs done and cut up the card. I hesitantly agreed and that was only because I thought that well she wasnt approved for the loan so this wont go through either.

Well imagine my horror when the application came back accepted.....for $4200!!!

Why would the bank decline for the loan but approve the credit card. How do banks work? I have told DD that I will hold her card and that she can get her car fixed then we are cutting it up! We are going to work the repairs into the affordable payments so that she will have it paid in the 55 days interest free time.

Any other suggestions I can offer her. She is 18 and I dont want her falling into the trap of bad debt so young! I am still trying to talk her out of even accepting the card and just going into a joint loan with her dad. I know CC arent all that evil, but as a parent I just want her to be responsible.

Thank you for advice in advance.

#2 julzely

Posted 07 December 2012 - 10:33 AM

I can’t help on how banks make decisions and given your predicament the credit card doesn't sound like a bad idea.  However I would make a spreadsheet showing how much in interest she will have to pay depending on how long it takes her to pay back the $2000.  I think this will give her a good idea of the “real” cost of borrowing money.  Also please be aware that is it UP TO 55 days interest free, so you would need to know your billing cycle before relying on this. You should also be able to contact the bank and request a lower limit on the credit card. Unless she has already proved to be very irresponsible with money I wouldn't necessarily just cut up the card or have you hold onto it as I think at 18 it is her choice if she wants to use it. However I would arm her with all the information, to help her make an informed choice.

Another idea is to put the repairs on the credit card, then apply for a credit transfer to a different card which often gives you anywhere from 3 months to 12 months interest free.  Then cancel the old card.  I haven’t actually done this so you should probably do some research around whether or not it is a valid option in your situation.


#3 tweedy08

Posted 07 December 2012 - 10:51 AM

She is very responsible with money or as responsible as an 18 year old can be of course.....lol.

I have spoken with her and we both agree that perhaps the amount is a little too high for her atm (temptation wise) and when she goes in to the bank to collect the card she is going to ask them to lower the limit.

Both hubby and I have armed her with all the information we possibly can including the troubles we had when we were young and given money. We have ensured she knows that this is NOT free money and that she does need to pay it back. She is happy for the card to be left at home in order to avoid those big ticket impulse buys that we often regret when we get home....lol.

I am still shocked at this outcome though. I really thought a personal loan would be the more affordable option over the CC but who knows. Maybe I am thinking about this all wrong?

#4 M1B2G

Posted 07 December 2012 - 11:20 AM

The loan is more sensible for you guys...  However the credit card has a greater capacity to earn profits for the bank...  

Banks do not make money off people who pay their credit card debt quickly they make it off people who are stuck in a cycle of paying off a payment against their credit card debt..

My pensioner parents continue to get offered completely inappropriate credit card limits that they cannot afford on their small fixed income.

#5 Beanbag Warrior

Posted 07 December 2012 - 11:28 AM

A credit card has a MUCH smaller minimum repayment on it than a loan does.  My $6k visa only needs about $35 put on it to retain the card.  Then, they can earn the interest they'll be charging you, so of course they'll give her the credit card over the loan.

By cash in hand, do you literalyl mean notes to palm, or just what goes into her bank.  If you literally mean CIH, then I'm not surprised - it's hard to prove savings without a DD from payroll into her account.

#6 tweedy08

Posted 07 December 2012 - 11:31 AM

QUOTE (NapCat @ 07/12/2012, 12:28 PM) <{POST_SNAPBACK}>
By cash in hand, do you literalyl mean notes to palm, or just what goes into her bank.  If you literally mean CIH, then I'm not surprised - it's hard to prove savings without a DD from payroll into her account.


I mean after tax and what is put into her bank account original.gif


#7 Mrs Mc

Posted 07 December 2012 - 02:20 PM

Does she have any accounts in her name, like a phone account.  I know when i was younger, i got declined for a mobile phone.  They told me go get a credit card, but small items on it and repay it straight away, that will give her a credit rating.  At the moment she would not have a credit rating at all.


#8 ellebelle

Posted 07 December 2012 - 02:31 PM

I would be asking to speak to someone more senior in the bank. I think that's appalling.

#9 tweedy08

Posted 07 December 2012 - 02:47 PM

QUOTE (Mrs Mc @ 07/12/2012, 03:20 PM) <{POST_SNAPBACK}>
Does she have any accounts in her name, like a phone account.  I know when i was younger, i got declined for a mobile phone.  They told me go get a credit card, but small items on it and repay it straight away, that will give her a credit rating.  At the moment she would not have a credit rating at all.


Nothing. Her Mobile phone is prepaid and all utility bills are in mine and her dads name. She actually giggled and said that she doesnt even have a mobile phone plan yet she has her own CC!

QUOTE (ellebelle @ 07/12/2012, 03:31 PM) <{POST_SNAPBACK}>
I would be asking to speak to someone more senior in the bank. I think that's appalling.


I am thinking of doing that when she goes in to pick up her card. I do think though it has to do with the fact the the repayments on a credit card are a lot less harsh than a personal loan just as NapCat has said.

Maybe im being an overprotective parent and should let her have this responsibility. We are definitely getting the amount lowered though when she gets the card. At least she is less likely to get in trouble with a $2k card over a $4k card.

I am still shocked though about this whole scenario. Well on the bright side, she will have her car fixed  up and I wont have to worry about her being out and her car not starting.

Its crazy how banks work these days as I was chatting with DD BF just this morning and he has just been approved for a $20k car loan but couldnt get any more than $1k for a CC yet he has been working FT for 2 years on well over $900pw.

Very weird!! But I will ensure my daughter is armed with all the right info in order to avoid trouble. Between us though, I would jump in and make the monthly repayment if she got in trouble. Would hate for her to stuff up her credit rating so young. I wont be telling her that though and she already said that she applied for an extra card for me and will be leaving her card with her dad once the repairs are done. The card is linked to her bank account so she can easily transfer money directly over to the card in order to make repayments.


#10 opethmum

Posted 07 December 2012 - 03:04 PM

I don't think cutting up the card would be a good idea in the long run, I think it would be a good thing for her to have in case this happens again and that she can get those big ticket items when she feels she is able to bare the cost.
When she does apply for a home loan or personal loan I think her paying off the credit card says to the bank that she can repay loans on time. Make sure she keeps on top of the repayments, set up internet banking direct debits from her account to her cc so she does not forget to repay the loan and each month sit with her to review her statements and budget accordingly for the next month etc.
Also if she is so tempted perhaps put the cc in a cup of water and freeze it.
Good luck!


#11 anasam

Posted 07 December 2012 - 04:46 PM

Have you tried a different bank? Not all banks use the same criteria for deciding on loans.

#12 FeralLIfeHacker

Posted 07 December 2012 - 04:53 PM

QUOTE (Mumof1B2G @ 07/12/2012, 12:20 PM) <{POST_SNAPBACK}>
The loan is more sensible for you guys...  However the credit card has a greater capacity to earn profits for the bank...  

Banks do not make money off people who pay their credit card debt quickly they make it off people who are stuck in a cycle of paying off a payment against their credit card debt..

My pensioner parents continue to get offered completely inappropriate credit card limits that they cannot afford on their small fixed income.



This.

We applied and were approved for a balance transfer on a cc, the amount was $2000,  the new CC came with $5k credit limit, I mentioned this to a friend in banking and she said it was common practice since the bank hopes you spend the extra $3k.

#13 *JAC*

Posted 07 December 2012 - 06:44 PM

Just to comment on PP's saying you need a credit card or similar to 'get' a credit rating. This is not true. All that appears in a credit check are defaults and things you've applied for. in facet if you list a credit card when applying for something, it is more of a liability than a positive. Even if you have zero balance they look at the limit as a debt.

#14 jojo24

Posted 09 December 2012 - 08:37 PM

tell her to shop around we recently needed $2k worth of stuff done to the car and they offered 2 payment options 1 was interest free pay off over 12months, the other was pay some up front and pay off over 6 months.

#15 KT1978

Posted 09 December 2012 - 08:44 PM

Does she have a savings plan? Maybe a good time to start her off saving at least $100 week after te repairs are paid off? That way the next big expense will be taken care of.

#16 Let_it_Rain

Posted 09 December 2012 - 08:54 PM

I'd say it came down to affordability. The bank has to assume some expenses even if she does not have them which whill effect it if she has a lowish income.

A personal loan will have fixed repayments since there is an end date, credit card she can pay $50 a month forever so much more affordable.

I worked for a bank until recently and for us a personal loan was a "better" sale than a credit card.

Lying about the outcome of an application would also be a sackable offense so I somewhat doubt they would be saying she was declined to get a different sale.

#17 ~ppp~

Posted 09 December 2012 - 08:56 PM

If your daughter takes the credit card and responsibly pays it back I would think this would help to establish a good credit rating for life for her which will come in handy in the future for home loans etc.

But I know personally I saved heaps of money and always had about $8k saved from 18-22years of age ( working 12 hours a week), then got a credit card and was then always in debt as i just bought what i wanted rather than saving for something I wanted.

My one friend who is excellent with money and paid her mortgage off in <5 years has never allowed herself a credit card. So I do think credit card require a heap of discipline and cutting the card up might be the best approach :-)

Eta: just read above and sounds like it doesn't help the credit rating. Personally is try and keep her away from credit cards then

Edited by knowsnotmuch, 09 December 2012 - 11:55 PM.





1 user(s) are reading this topic

0 members, 1 guests, 0 anonymous users

 

What you need to know about pregnancy and health insurance

It's not just waiting periods that couples need to consider - there are other factors to consider when thinking about health insurance.

Yummy mummy

Nicole Trunfio breastfeeds baby on Elle magazine cover

Australian model Nicole Trunfio has taken the concept of multitasking to a fashionable new level for Elle Australia.

Warnings after baby girl died while sleeping in bouncer

Parents have been warned about the dangers of letting babies sleep in bouncers and swings following the death of a three-month-old girl.

Coping with fatigue as a parent

Sleep deprivation is a real hazard of caring for a baby. But there are ways to manage the challenges of fatigue better.

A very 21st century issue: parents, parks and smart phones

It's not all the parents, and it's not all the time, but there is often at least one doing it. And sometimes, that 'one' is me.

Appliances

Faulty washing machines linked to house fires

More than 80,000 faulty Samsung washing machines pose a fire threat in homes throughout Australia despite a nationwide recall of the machines.

'I had a lotus birth and I loved it'

Lotus birthing is not all that common, but for a number of women it feels like the most natural thing to do.

7 things you might not know about postnatal depression

Despite its widespread nature, there is still a great amount of mystery surrounding PND - and it's important to try unravelling as much of that as we can.

Is your family's car part of the world's biggest safety recall?

More than 50 million vehicles recalled for potentially lethal airbag fault - is your car affected?

Why drinking water can be deadly for babies

H2O is one of the necessities of life, but for babies a seemingly harmless amount of water can be fatal.

Mother-in-law faceplants during proposal

He had it all planned: a romantic proposal on a windswept beach. The whole family would be there so they'd all be able to celebrate the joyous moment together.

A preschooler suddenly goes mute - and it's not just shyness

When our son stopped talking, our sense of loss was painful and acute.

The mums who ask for a 'wife bonus'

They run their homes like domestic CEOs and work tirelessly to improve their family's social standing. And now, according to a new book, they want an annual perk from their husbands.

Woman shares photo of dimple on breast to warn others of cancer risk

A widely-shared Facebook photograph of a British woman's breast has raised awareness of a more subtle breast cancer symptom.

Starting a family despite a low sperm count

"I'd never really failed a test - how could I fail this particularly manly test?"

It's official: we must better protect our kids from toxic lead exposure

New guidelines have been released, aimed at reducing children's harmful exposure to lead. But they still don't go far enough.

Trouble-shooting toddler social skills

Chances are your toddler's behaviour is all completely normal - but here's how to tackle some common social problems.

Helping your first-born welcome a sibling

We did sigh with joy at the arrival of a royal princess - but, mostly, we sighed with pity at the sight of Prince George being taken to meet her.

Farewell, daytime nap

I've been in denial and I'm not too proud to beg, but it appears I must accept the fact that you have gone. I need to let you go.

The identical triplets who are one in 50 million

The father of identical triplets born in a Texas hospital says his three daughters, including conjoined twins, are "a miracle" sent by God.

Seven questions you should be asking about your health cover

If the last time you assessed your health cover was five years ago, there?s a chance it may no longer suit your needs. To ensure it?s still right for your family, click here for seven questions to ask.

 
Advertisement
 
Advertisement
 
 
 

What's hot on EB

How to use gas effectively in labour

Many women in labour don't use gas effectively and suffer more side effects than benefits. Here's how to get the most out of this pain relief option.

'He has gastro but that's okay, right?': sick kid etiquette

We cannot place all children who are sick in a bubble till they recover, but we can give other parents a choice about exposing their kids to them.

Ada Nicodemou: 'I can never be completely happy again'

Home and Away actress Ada Nicodemou has opened up about the loss of her stillborn baby.

10 things to consider when you're thinking about trying for a baby

Before you start tracking your menstrual cycle and reading up on the best positions to get pregnant, there are a few other things you may want to consider.

How special surgery and IVF can create a post-vasectomy baby

Cricket legend Glenn McGrath and his second wife Sara are expecting their first child together, thanks to IVF and a delicate surgical sperm retrieval process that helped the couple to conceive.

Belle Gibson's mother 'disgusted and embarrassed'

The mother of disgraced wellness blogger Belle Gibson has accused her daughter of lying about her childhood in an attempt to garner public sympathy.

Doctor's mobile phone 'left inside c-section mum'

A new mum claims a doctor left his mobile phone inside her after delivering her baby via caesarean section.

I'm a mum and I'm following my dreams

I want my kids to know that no matter what happens in life, you can still be who it is that you've always wanted to be.

Those first daycare days

I had this innate 'mum' moment the other day.

'If one person had listened, my life would have been so different'

Katherine's father will die in prison for the horrifying sexual abuse of his daughter. Yet she is the one with the true life sentence.

This new plan undermines breastfeeding and baby health at everyone's expense

Mothers, babies, the health system and the wider society are going to pay the price of this new budget.

Couple to celebrate terminally ill baby's birthday in unique way

Baby Jai Bishop has lived at Starship Hospital for the past seven months, with his parents flying back and forth from Hokitika, 1100km away, to be by his side.

Life On Mars

It's men who need 'retraining', not women

We are all responsible for our own behaviour. Telling victims to harden up is wrong.

Baby Gammy's dad tries to claim charity money

The biological father of baby Gammy has reportedly tried to access charity money raised for the little boy's medical costs.

Where are the childcare places?

It?s all very well to encourage women to work if they choose to, but how can the measures lead to increased workforce participation when women are once again left holding the baby?

The pain of not having babies and not knowing why

After seven years of wishing, hoping, crying, punching pillows and shouting "why me?!", the end result is more than I ever thought possible.

Getting your family finances in order

Whether you're after a new car for a growing family, a bigger house, or are just fixing up your finances, here are the basics on borrowing.

Mum shares graphic selfie to warn against tanning

A mum has shared a graphic photo of her skin cancer treatment as a warning to others.

Does parenthood make us happier?

We can certainly gain higher levels of happiness when we become parents, but the trick is to not get overwhelmed by the pressures of raising our kids.

No, having a dog is not like having a human child

It's obvious these people dote on their pets, but they're barking up the wrong tree.

 

Top baby names

Baby Names

The numbers are in and we can now bring you the 2014 top baby name list for Australia.

 
Advertisement
 
 
Essential Baby and Essential Kids is the place to find parenting information and parenting support relating to conception, pregnancy, birth, babies, toddlers, kids, maternity, family budgeting, family travel, nutrition and wellbeing, family entertainment, kids entertainment, tips for the family home, child-friendly recipes and parenting. Try our pregnancy due date calculator to determine your due date, or our ovulation calculator to predict ovulation and your fertile period. Our pregnancy week by week guide shows your baby's stages of development. Access our very active mum's discussion groups in the Essential Baby forums or the Essential Kids forums to talk to mums about conception, pregnancy, birth, babies, toddlers, kids and parenting lifestyle. Essential Baby also offers a baby names database of more than 22,000 baby names, popular baby names, boys' names, girls' names and baby names advice in our baby names forum. Essential Kids features a range of free printable worksheets for kids from preschool years through to primary school years. For the latest baby clothes, maternity clothes, maternity accessories, toddler products, kids toys and kids clothing, breastfeeding and other parenting resources, check out Essential Baby and Essential Kids.