The Credit Limit Reaches The Sky
Sydney Morning Herald
Tuesday September 2, 1986
THREE major finance companies - Australian Guarantee, Mercantile Credits and Custom Credit - have moved into the plastic card business and are offering credit limits that make Bankcard look like small beer.
With the financiers' cards no interest is paid until the card is used, and then only on the amount withdrawn. The system has also taken some of the stress out of credit application - only one formal application is necessary and the repayment schedule is not rigid, as it would be with a personal loan or hire purchase.
The cards are designed to offer flexibility to meet cash-flow problems, while giving the security of knowing there is a substantial cash reserve on hand. They are similar to the line-of-credit facility available to holders of American Express gold cards.
The cards do not have any interest-free period. Once funds are drawn, the meter is on, and interest rates range from 20.8 to 28.03 per cent a year -somewhat higher than most personal loan rates.
The Mercs Card was launched recently by Mercantile Credits - a member of the National Mutual Royal Bank Group. With a limit normally around $10,000 and in some cases as much as $20,000, the card's appeal should be to the top-line spender or someone planning home renovations, for instance.
Provided you have sufficient financial stability and ability to repay, Mercantile Credits virtually allows you to pick the line of credit you need.
The Mercs Card cannot be used to get cash, or for direct purchase of goods. But with it a borrower can obtain a cheque from any of Mercantile Credits' 40 branches or transfer funds to a client's bank account.
Interest on the Mercs Card is 20.8 per cent a year. This compares with 22.2 per cent on Westpac's Bankcard and 18 per cent on the St George Building Society's Visa card.
Repayments are flexible, with a monthly minimum of $50 or 3.75 per cent of the amount outstanding, whichever is the higher. There is a minimum withdrawal of$250, and the credit available mounts back towards its original limit as repayments are made.
Mercantile Credits says the card allows holders to take off on a skiing holiday at a moment's notice, pay school fees or provisional tax, pick up an antique at auction, accept stock options and solve business problems without recourse to an overdraft.
It can be used to help smooth out peaks and troughs in finances and to consolidate bank overdrafts.
The company says the Mercs Card's limit of $10,000, $15,000 or even higher is a privilege few financial institutions will extend. About 95 per cent of Mercs Card holders have a limit of about $10,000.
Carrying the card is a mark of distinction, the company says. "People will treat you with an increased measure of respect," it claims. Cardholders mostly earn $30,000 a year or more - usually business executives or professionals such as accountants, doctors, or lawyers.
"It's not the domestic consumer finance area at all," says a Mercantile spokeswoman. "Our credit approval is fairly tight. We're not looking for a large client base and are keeping the card fairly exclusive. We're very satisfied with the growth of the product - we see it as a controlled marketing exercise."
The AGC Credit Line card is designed to finance retail sales of big ticket items, and has a limit of $10,000. It can be used by its 150,000 customers in about 12,000 outlets throughout Australia.
To set up the facility, customer sign a master agreement at the point of purchase, nominating the monthly repayment they can afford. This amount defines their revolving credit limit. The retailer forwards the contract to AGC which in turn mails a cheque to the retailer and a credit card to the customer.
The minimum purchase is $50, and annual interest is 28.03 per cent.
A spokesman for AGC says cardholders are "right across the board. We'll take anyone as long as they meet the credit requirements, regardless of their employment or residential history".
Customers benefit by the card because it supplies readily available credit with fixed monthly repayments nominated by the customer, although there is a minimum monthly repayment of $20. Payments can be adjusted at any time. Credit Line allows the customer to shop with a minimum of delay but "leads them not into temptation, since they cannot spend more than they agree to repay."
The credit card facility does not compete with Bankcard, he says, which has a much smaller limit and is usually used for buying smaller items.
Custom Credit's Customcard, which has been operating for nearly a year, has a$15,000 limit and interest of 27 per cent a year. It too is on a revolving basis so more credit becomes available as repayments are made.
The card has a minimum purchase of $50 and, like the AGC Credit Line, is aimed at big ticket purchases. About 3,000 retail outlets will accept the card.
Customers are required to pay a minimum of 4 per cent a month of an outstanding balance up to $5,000, and 3 per cent of anything above $5,000.
It was also the first finance-company credit card designed to operate through the banking system, with instant cash withdrawals of up to $500 a day available from any branch of Custom Credit's parent, National Australia Bank.
Larger amounts up to the credit limit can be drawn by cheque from any bank or Custom Credit branch, but in both cases the minimum withdrawal is $200.
The card will soon be usable in National Australia Bank automatic teller machines and at retail outlets.
© 1986 Sydney Morning Herald
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