Need more information on any of the products featured on Friendly Finance? Please see our range of Frequently Asked Questions below.
Short-term loans are loans with a principal ranging between $200 – $2000, with repayment terms between 16 days and 12 months. Repayment typically involves a direct debit from a borrower’s bank account, or a deduction from their pay.
Lenders who offer short-term loans are required by law to display a warning that provides other borrowing options than a short-term loan.
Personal loans are loans of $2000 or more taken out for personal reasons, such as to pay for a holiday or finance a renovation. The lender provides an amount of money to the borrower, which they agree to repay within a certain period of time (the “term”). The term is often between 12 months and 5 years, and borrowers sign a credit contract that specifies the amount borrowed, and terms under which it will be repaid.
Personal loans also accrue interest on the amount borrowed. This can either be charged at a fixed rate (unchanging throughout the term and charged as a percentage of your personal loan amount) or a variable rate (fluctuates up and down throughout the term), or sometimes even a combination of both.
Consumers facing a cash shortfall between paydays may consider taking out a short-term loan, as they provide relatively fast access to cash. This might be done if the borrower doesn’t have a credit card or overdraft facilities, or any other fast access to funds.
Short-term loans are a relatively expensive solution, however, so the decision to take out a short-term loan should include close assessment of all fees, charges, and interest costs involved.
The majority of short-term loans available in the market can be applied for online. There are still a number of store-front lenders throughout Australia where consumers can apply in person.
The application process tends to vary depending on the lender, although most lenders online provide similar functionality to select the loan amounts and repayment terms. Lenders may also ask applicants to input their credit rating which may affect the amount of interest applied to the loan.
Technically, yes. However, there are certain legal requirements that dictate how much Centrelink recipients can borrow, depending on the proportion of their income this represents.
Legally speaking, if an applicant receives more than 50 percent of his or her income from Centrelink payments, the loan repayments on the short-term loan cannot be more than 20 percent of the applicant’s gross income. However, some lenders are much more strict on this point and don’t count income from Centrelink towards an applicant’s income stream when assessing their ability to make repayments.
There are minimum eligibility criteria that are followed by most short-term loan providers. These include:
– At least 18 years old
– Have a steady job and earn a minimum income of around $350 per week
– Receive frequent payments into your bank account at regular intervals
– Receive less than half of your income from benefits
The amount of time taken for funds to hit your bank will vary depending on a number of factors.
If you apply within business hours and share the same bank as the lender, you could receive funds within minutes. If you have a different bank, a transfer could take around 60 minutes. If you apply outside of business hours, it may not be until the next business day before you to receive your funds.
Some lenders also offer a Visa Prepaid Card, which allows users to upload money directly onto the card and is then accessible within minutes.
Typically, the money is taken out of your bank account automatically.
This is usually scheduled for the day you receive your income pay into your account to ensure minimal risk of default.
If you find yourself unable to repay a short-term loan, the most responsible course of action is to notify your loan provider immediately. They will advise you on what to do but you may still be liable for late fees or charges. Some lenders may suspend interest payments until you can repay the loan under certain circumstances, so it’s worth enquiring.
If you don’t alert the loan provider and your loan defaults, you will be required to pay a default fee at the very minimum. This is often a double fee, charged by both your bank and the lender on the default. You may also be required to pay a fee for each day that the repayment is late, as well as a late repayment fee once you finally repay the amount owed.
You might also wish to seek external help if you are in financial hardship, by speaking to a free and confidential financial counsellor.
It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.
Check your options before you borrow:
The Australian Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.*This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.