Whether you’re financing a trip abroad or need something around the farm you might end up using day-to-day at home such as a fridge or deep freezer, you’re at a crossroads.
Do you dip into your line of credit or farm funding? Put it on the credit card?
It’s a tough decision, as the purchases are too big for the everyday and too small in the scheme of agri-finance.
Here’s a guide from financial products broker Savvy on options to finance those little — but important — purchases to keep your household and farm running as smooth as can be.
Don’t rely on the credit card
As we’ve reported before, more and more Australians are travelling using “buy now, pay later” schemes to fund their business and pleasure trips, which ultimately means putting it all on the credit card.
Almost all buy now, pay later schemes are linked to credit cards, which stagger payments over four or six instalments. If you miss an instalment, you are slugged with a substantial fee — which you must also pay off on your credit card.
Since credit cards are rolling credit, if you only pay back the minimum each month, the high interest rates roll over month by month — which can leave you thousands or even tens of thousands of dollars in debt in the long term. This can hurt your credit rating if you’re trying to buy a house, for example.
Consider personal loans
If you’re mulling over the best course to chart in terms of buying big-ticket household items yet small in the scale of a farm, you should consider personal loans.
Though you may be tempted to dip into your business line of credit or equity to finance relatively major cash purchases — it’s not easy getting together $5000 in a pinch — getting a personal loan instead could save you more in interest than dipping into lines of credit or putting things on the credit card.
For example, a $5000 purchase on a credit card — assuming you don’t use it again, ever — at an interest rate of 19 per cent a year would cost $15,121 in interest if you only paid off the minimum monthly amount.
A personal loan across three years would cost $166 a month in repayments, and only attract $987 in interest. The best part is, every repayment you make gets you closer to paying off the loan completely.
Long-term assets mean long-term finance
Whether it’s for work or the home, the longer you will use the item the longer the finance term should be.
Though you can get concessional loans under the Dairy Recovery Scheme, this should be used to manage large purchases that your farm will use over years or even decades. This can help prevent you from running into cash flow problems down the line, as using short term reserves on long-term assets will leave little left over for the day-to-day.
Be judicious in your purchases and if you are tempted to put something with more than four figures on the credit card, consider a personal loan first.
The finance information here is general in nature and should not be a substitute for professional advice.