Small Loans

Three tiers, three sets of rules

Australian consumer credit divides small borrowing into bands, and which band you fall into changes the cost more than any lender comparison will.

Up to two thousand dollars over a term of at most a year is a small amount credit contract. No interest may be charged. Instead there is an establishment fee of up to twenty per cent of the amount borrowed and a monthly fee of up to four per cent.

Between two and five thousand dollars is a medium amount credit contract. Here an establishment fee of up to four hundred dollars applies alongside an interest rate capped at forty eight per cent, which includes fees.

Above five thousand dollars, ordinary personal loan rules apply and pricing is set by the lender and the risk. The forty eight per cent cap still applies to most consumer credit.

Why the band matters more than the lender

Because the fee structures differ so sharply, borrowing an amount just under a threshold can cost more in total than borrowing slightly more under the next set of rules. It is worth checking rather than assuming that smaller is always cheaper.

The other consequence is that most compliant lenders in the smallest band charge at or near the caps, so price differences between them are modest. The real variables are who will approve you and how quickly, which is where comparing across a panel helps.

Working out the true cost

Take the repayment, multiply by the number of payments, and compare the total to what you borrowed. On a small, short loan the total can be a large proportion of the principal, and seeing that number plainly is the point.

Then look at the fees that depend on what happens rather than what is agreed. Dishonour fees are the main one, and they can be significant relative to a small balance. Setting the direct debit for the day after your pay arrives, rather than the same day, prevents most of them. Our calculator is a quick way to sanity check any quote.

What people borrow small amounts for

The common cases are consistent: a vehicle repair, a rental bond, a dental or veterinary bill, replacing a failed appliance, covering an insurance excess, or a funeral. What they share is that the cost is specific, unavoidable and badly timed rather than open ended.

That is the profile a small loan genuinely fits. Where the money would cover a recurring shortfall rather than a one off, the structure is wrong and a repayment will make the following month harder.

Things to try before borrowing

Several alternatives cost nothing and are quicker than people assume. Energy, water and telecommunications providers must offer hardship arrangements and will usually spread a large bill over months without charge, which also avoids a default being recorded against you. Every state and territory runs concession schemes for utilities and rates that many eligible households never claim.

No interest loan schemes operate nationally through community organisations for essential household goods and some vehicle repairs, and they charge no interest or fees at all. Eligibility is generally tied to a health care card or a low income, and where you qualify these are far better than any commercial product.

Existing lenders can also vary repayments on hardship grounds at no cost, which frees up cash without new borrowing.

What lenders assess

Even on a small amount, licensed lenders must make reasonable enquiries into your circumstances and verify them. That means identification, income evidence and ninety days of bank statements. Assessors look at whether income arrives consistently, what is already committed, whether the account runs to zero each cycle, and whether there is recent short term borrowing.

That last point matters. Repeat small loans are one of the more common reasons an application is declined, because the pattern suggests the budget does not balance rather than that a one off cost has arisen.

Getting started

Apply online at any time or call during business hours. Having identification, recent payslips and ninety days of statements ready as a PDF is the single biggest factor in how quickly an application moves.

If a slightly larger amount over a longer term would serve you better, we will say so. Our personal loans page covers that ground. Call 1800 079 147 to talk it through. Enquiries leave no mark on your credit file.