Frequently Asked Questions
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.
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.
Applicants will need to provide the following information:
- Personal contact details, including a form of identification and the reason for the loan
- Details of employment, including salary, payslips, payment frequency and evidence of your regular income (if self-employed, you may need to provide some evidence of business activity statements or tax verification)
- Information about pre-existing debts, credit or other assets
- Details of any Centrelink payments, or another social benefit.
- Lenders, on occasion, may request additional documentation not listed above. In most cases a decision is likely to be made within a few minutes, however, it may sometimes be longer depending on your application and additional information that may be required.
The documents you will need to provide to take out a short-term loan will differ between lenders. Some lenders also have automated credit assessment technology that allows them to access certain documents automatically, such as 90 days of bank statements, or the applicant’s credit history.
The documents you may be required to present can include:
- Some form of ID, such as a driver’s license, passport
- Payslips or Centrelink statements
- Copies of bills, or other liabilities
- Credit card statements
- Copies of other credit contracts, or statements of accounts
- Rental ledgers demonstrating whether rental repayments are made on time and are up to date
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
- Have a stable financial situation in the immediate short term
Further to these basic criteria, many short-term lenders then only consider an applicant’s ability to repay the loan. This means the following categories can be eligible for short-term loans if they meet repayment criteria:
- Centrelink recipients (given their payments don’t exceed 50 percent of their total income)
- Single parents
- Self-employed (some lenders will require additional documentation from this category)
Many short-term loan providers perform a credit check as a part of their application processes, with credit bureaus such as Veda (now Equifax), Experian, or Dun & Bradstreet (now Illion). These bureaus have your credit history on file and will provide lenders with your credit score. Because Veda (now Equifax Australia) is Australia’s largest credit bureau, many lenders assess applicants using their VedaScore. This is a number that can range between 0 and 1200 according to your credit history:
- Below average to average (0-509): This indicates that it is highly likely you may incur an ‘adverse event’ such as a default, bankruptcy or court judgment.
- Average (510-621): This indicates that it is likely you may incur an ‘adverse event’ such as a default, bankruptcy or court judgment.
- Good (622-725): This indicates that it is less likely you may incur an adverse event.
- Very Good (726-832): This indicates that it is unlikely you may incur an adverse event.
- Excellent (833-1200): This indicates that it is highly unlikely you may incur an adverse event.
Some lenders require that your credit score is 600 or above before they will lend to you.
Other short-term loan providers don’t require that applicants meet any type of credit score requirements, so don’t undergo a credit check when assessing your eligibility for a loan. This is sometimes the point of differentiation they offer to their customers. Their only interest is your current ability to repay the loan.
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.
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.
There are a number of different types of personal loans to choose from.
SECURED PERSONAL LOANS
Secured loans are loans that have an underlying asset, such as property, used as collateral. In the event that the borrower defaults, the personal loan provider may be entitled to take this collateral to recoup their losses. Because of the lower risk involved for the lender, the interest rate on these loans is usually lower than with unsecured loans.
UNSECURED PERSONAL LOANS
Unsecured loans are loans that do not have any underlying asset offered as collateral. As a result, these loans usually come with a higher interest rate so that the lender is compensated for the higher level of risk they are taking on.
PEER-TO-PEER (P2P) OR MARKETPLACE LOANS
Peer-to-peer or marketplace loans are relatively new to Australia.
These unsecured personal loans are organised directly between borrowers (individuals or companies) and investors (retail, sophisticated, or wholesale) without the use of a large intermediary, such as a bank, building society, or credit union. Because the process is automated using sophisticated algorithms and tech-based platforms, these loans are said to be cheaper for borrowers and achieve higher returns for investors. The owners of the platform make money by taking a small cut from each transaction in the form of a fee.
Though each P2P or marketplace platform operates under a somewhat different model, a common tactic to mitigate risk is to “fractionalise” the loan pool. This involves the lender providing very small portions of funds to hundreds of borrowers, diversifying their risk in the process. Some lenders also provide “insurance” in the form of a provision fund to be dipped into in the case of a borrower defaulting.
An overdraft personal loan allows a borrower to draw down funds on their bank account, past their own available funds. This can be done by accessing cash at an ATM, using a debit card, or through the bank’s online facilities.
These accounts are handy because they allow users to avoid declined transactions and the associated dishonour fees that can come with them. However, they can come with a hefty interest charge and monthly fee whenever you do decide to use them (usually this is waived if you don’t), so it’s important to understand the costs upfront.
LINE OF CREDIT
Otherwise known as an equity loan, line of credit personal loans allow borrowers to draw down funds from the equity in their property. Equity is calculated as the difference between the amount a borrower owes on their mortgage, and the amount the property is worth.
The drawn down funds can be used incrementally, or all in one go, and an interest rate is paid on the funds. Repayment can involve minimum, interest-only repayments each month, or monthly principal and interest repayments.
Line of credit loans are similar to credit cards, however, they usually have a lower interest rate and a higher limit. They can be dangerous in the sense that they involve large sums of easily accessible money, so they require a great deal of financial self-control.
Personal loans can be used for any activity you decide. Some of the more common uses include financing a holiday, vehicle, renovation, course or degree, wedding, or even consolidating debt. As a personal lending solution, there are no stipulations that limit what you can and can’t use a personal loan for.
Different lenders have different eligibility criteria. However, typical base requirements often include:
- Being 18 years or older
- Being an Australian permanent resident or citizen, and residing in Australia
- Being a non-Australian permanent resident in the hold of an acceptable visa, and residing in Australia
- Earning a regular and/or minimum net income (this will vary between lenders, but often starts at $25,000 per annum)
- Being able to make repayments
- Not currently being an undischarged bankrupt
The process for applying for a personal loan will vary across lenders. However, there are four main channels through which borrowers can do this: online application, phone application, postal form application, or in person at a branch. All channels follow roughly the same process, however, the effort level required by applicants may vary across channels.
The first step in the process will be to provide a number of personal details. On top of declaring that you meet the basic eligibility criteria (see “4. Who is eligible?”), this usually involves proof of income via payslips or an ATO notice, and details of any other debts you may have, such as credit cards or other loans.
Once the application has been completed, the lender will typically contact you within a couple of business days. They will usually ask you to review supporting legal documentation for the loan, such as the loan PDS. They may also request copies of supporting documentation that proves your income, debts, and identity. These will need to be emailed or posted to the lender, or delivered in person to your nearest branch.
Your credit contract will then be emailed or posted to you. Once you sign and return this to the lender via email or post, your loan will be approved and accepted within 24 hours of the lender receiving the contract from you. The funds will then be “drawn down” into your account, where they will be accessible by you to use as you wish.
The documents needed for a personal loan will differ across lenders, however, the most common documents include:
- Proof of identities, such as a drivers license, passport, Medicare card, or Proof of age card
- Proof of income, such as payslips or an ATO notice
- If you are self-employed, recent tax information or business activity statements
- 90 days of bank statements (these are often accessed electronically by lenders)
- Details of any debts, such as credit card statements or other credit contracts
- Details of any savings and assets
- Details of any other expenses
- A personal reference including name and contact details
It is usually possible to repay your personal loan early. However, many lenders charge an ‘Early Repayment Adjustment’ fee if your loan has a fixed rate of interest. Some lenders charge fees for early repayment even if you are on a variable rate of interest, so it’s important to inquire about this option before signing up for a personal loan.
There are several key areas for consideration when it comes to choosing personal loans.
FIXED VS. VARIABLE INTEREST RATES
- Fixed interest rates offer more certainty, as the amount you owe doesn’t change, however they often come with fees for additional or early repayment
- Variable interest rates offer less certainty, as the amount owed can fluctuate up and down during the loan term, however, they provide more flexibility in terms of making early repayments and can sometimes result in a lower loan cost if they decrease
FEES AND CHARGES
Personal loans can come with a large number of potential fees and charges, all of which should be outlined in a schedule of fees and charges upfront. They are normally debited directly to your loan account once owed, so it’s important to be aware of the possibility ahead of time.
- Default / Dishonour fee: payable when there are not enough available funds to cover a direct debit
- Establishment or Application fee: a one-off payment when you set up your loan
- Administration fee: a monthly or yearly charge for administering the loan
- Redraw fee: payable if redrawing funds under certain conditions
- Early Repayment Adjustment fee: payable when making extra repayments on a fixed interest loan
- Break fee: payable if breaking a fixed rate loan and changing to variable
EARLY REPAYMENT OPTIONS
Many fixed-rate loans will incur an Early Repayment Adjustment fee in the event you wish to repay your loan early. These are designed to recoup the lender’s loss from breaking the fixed rate agreement, and so are limited to the credit provider’s loss caused by the early termination.
If you can’t repay a personal loan, the most responsible thing to do is to notify your loan provider immediately. They will advise you of the best course of action, even though 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.
You might also wish to seek external help if you are in financial hardship, by speaking to a free and confidential financial counsellor.
In Australia all vehicles must have insurance that covers for the death or injury of anyone involved in a motor vehicle accident. This is called Compulsory Third Party (CTP) insurance, or Greenslip insurance, and is usually included in your registration fees.
This insurance doesn’t cover damage to your or anyone else’s car or property, however, so it may pay to get non-compulsory Comprehensive Car Insurance also.
Comprehensive Car Insurance covers accidental damage to your vehicle, or theft of your vehicle. It also covers damage to other people’s property or vehicle where you are at fault, and car hire and/or towing after the accident.
The first step in getting car insurance is to get a quote, which can involve:
- Specifying the policy you want, and when you would like the insurance to start
- Inputting your vehicle type, whether it’s for business or personal use, and if you want it insured for an agreed or market value
- Inputting the personal details of you or any other drivers you want to be covered
- Selecting any policy extras, and notifying if you would like to increase your excess to reduce your premiums
Once you have a quote you are happy with, the application process is similar to the quote process, just in greater detail. Additional information you may be required to disclose includes:
- Any previous driving convictions
- Any other criminal offences
- Any previous vehicle accidents or thefts
- Any alterations you may have made to your vehicle, or any non-standard modifications and accessories
A number of factors are taken into consideration when an insurance company calculates your premium:
- The type of cover and excess you have chosen
- The location and conditions under which the vehicle is stored at night and during the day
- The age of the driver
- The driving record and insurance history of the driver, and any other people being covered
- The type of vehicle being insured
- The intended use of the vehicle
- Whether any modifications have been made to the vehicle
As with most financial products, it pays to shop around. You may also find that the car insurance policy with the cheapest premium isn’t the right one for you, as it may not provide the right level of cover and inclusions that suit your vehicle and circumstances.
However, the below factors may help you to achieve a lower premium:
- Choosing a market value premium instead of an agreed value premium
- Accepting a higher standard excess
- Purchasing your policy online
- Maintaining a clean driving record and completing a defensive driving course
- Paying your premium in an annual lump sum, instead of making smaller installments
- Installing safety and security devices on your vehicle, such as an alarm or airbags
- Parking your vehicle in a secure underground location
- Having multiple types of insurance with the one insurer
- Limiting the number of drivers nominated on your policy, especially those under 25 years old
- Driving less frequently
Yes, it’s possible to terminate an existing car insurance policy and begin a new policy with a different provider.
This may be ideal if you’re unhappy with the current level of service you’re receiving if you’re changing vehicles or moving interstate if changed circumstances mean you qualify for benefits provided in a different policy, or if you’ve simply found a better quote.
Typically, you can cancel your car insurance policy by providing notice to your provider. This may involve a policy cancellation fee. You may also be entitled to a refund on the portion of the policy you haven’t used yet.
Keep in mind that the cancellation date must coincide with the start date of the new car loan policy in order to avoid using an uninsured vehicle.
There are a number of different types of car insurance available for owners of motor vehicles in Australia:
- Compulsory Third Party (CTP) insurance: This covers the death or injury of anyone involved in an accident. It is compulsory in Australia.
- Comprehensive Car Insurance: This covers accidental damage to your and other’s property or vehicle, theft, legal costs, and a variety of other costs. It’s not compulsory in Australia.
- Third Party Property insurance: This covers damage to other people’s property and legal costs, but not your own.
- Third Party Fire and Theft insurance: This is similar to Third Party Property insurance, with add-on coverage for fire and theft up to a specified limit.
The “amount covered” refers to the amount that is insured, that underwriters are liable for in the event of loss. When it comes to car insurance, the amount covered can either be the market value of your car, or an agreed value decided upon when applying for the policy.
If you are at fault in a motor vehicle accident, you will be required to pay an excess. This is the amount you have to pay if you decide to make a claim on your policy. It can either be a standard excess (the same on every claim) or a voluntary excess (typically a higher amount chosen by you when signing up for the policy in order to reduce your premium).
When you make a claim, your insurer will either deduct the excess from the amount it pays you under your claim, or request payment directly from you. Some insurance companies may not pay your claim or provide any benefits until your excess is paid. Some insurers also charge an upfront excess as a matter of policy, regardless of who is at fault. This will typically be refunded if you are found not to be at fault.
In the case that you are not at fault, and can provide the name and address of the person who was, you are unlikely to need to pay an excess. This is because your insurer should be able to claim back their costs from the person at fault, or their insurer.
Most insurance companies insure all types of vehicles. However, they may charge higher premiums on certain types of vehicles, such as older secondhand vehicles, imported vehicles, and vehicles with a large number of non-standard modifications and add-ons.
A credit card is a small plastic card issued by a licensed credit provider, such as a bank or credit union, that allows the holder to pay for goods and services on credit.
Each card has a credit limit, which is the maximum amount you can spend on your card. This limit will either be an amount nominated by you, or the maximum amount your credit card provider is willing to lend you based on an assessment of the information provided during your application.
Repayments are made on a monthly basis and involve a principal and interest component. It is possible to only pay the minimum payment shown on your statement each month. Legally this cannot be lower than 2% of the closing balance, however, some lenders may set a higher minimum payment amount. Holders can also pay the entire closing balance or an amount between this and the minimum amount.
Credit card interest rates typically range between 15 and 20 percent, however, there is a range of low rate credit cards that can offer lower rates.
There are several different types of credit cards available in Australia.
STANDARD CREDIT CARDS
These credit cards are the most common and are available from most financial institutions. They are unsecured, meaning you don’t have to put up any type of asset as collateral. The annual percentage rate (APR) for standard credit cards can depend on the type of card you have:
- Balance transfer cards: allow holders to transfer funds from a higher to a lower interest rate card, and typically have an introductory APR of 0% that lasts for several months up to one year.
- Low interest credit cards: offer a low introductory APR that jumps higher after a certain period, or a single low fixed-rate APR.
CREDIT CARDS WITH REWARDS
Some credit cards allow holders to earn incentives when they make purchases on the card. These incentives are typically based on a points system, and are often only available to consumers with good credit. They can include:
- Cash back credit cards: users earn cash rewards for making purchases.
- General rewards points credit cards: users earn reward points they can cash in for gift cards, electronics, plane tickets, jewellery, hotel stays, etc.
- Hotel or travel points credit cards: users earn hotel stays or upgrades at involved hotel chains.
- Retail rewards credit cards: these can be general or brand-specific, and users earn points that can be redeemed for products or services from a specific retailer. Users can often earn double or triple points if the points earned are with that specific retailer.
- Petrol cards with points or rebates: these can be general or brand-specific, and users earn points to redeem a percentage back when paying for petrol at certain locations.
- Airline miles cards: these can be general or brand-specific, and users can redeem points earned for air travel through any airline, or a designated airline depending on the card.
BAD CREDIT / CREDIT REPAIR CARDS
Some cards are available to those who have bad credit, such as a secured credit card. These require collateral for approval in order for the provider to feel comfortable offering the credit card. This collateral can come in the form of anything of monetary value, such as a vehicle, property, or jewelry.
Prepaid credit cards can also assist those with poor credit to learn to use credit responsibly, as there are no finance charges, and all purchases are paid for ahead of time.
SPECIALITY CREDIT CARDS
Some credit cards are designed for specific categories of users and uses.
Business credit cards are designed for business owners and executives, and often contain a range of features that specifically appeal to people in the business world. These can include business rewards and savings, expense management reports, and higher credit limits, to name a few.
Student credit cards are designed to assist students to build a credit history from the ground up and are often scaled back in terms of rewards and features.
There are a number of things to consider when selecting a credit card:
- Intended use: What you want to use your card for will impact all other decisions around interest rates and rewards, etc. If you are likely to pay off the entire balance each month, the interest rate won’t matter so much, so you will look for a card with a low annual fee. If you are interested in incentives and rewards, these may be a more important consideration.
- Interest rates: You may have a preference between a fixed-rate card with a predictable payment amount or a variable rate that has the potential to drop at some stage.
- Credit limit: Your provider may be willing to offer you a higher credit limit than you want. It’s important to consider what you can actually afford to repay, before you are faced with the temptation of a large amount of available credit.
- Fees and penalties: All credit cards come with a variety of charges for both regular transactions (e.g. balance transfers, cash advances, or asking to pay over the phone) or for deviating from the agreed-upon terms (e.g. paying late or missing a payment).
- Incentives: Many credit card issuers offer different rewards, some of which may appeal more than others. Look for credit cards that offer rewards you’re interested in. Otherwise look for cards that offer no rewards if you’re not interested in this aspect of owning a credit card, and don’t wish to pay for the feature.
Balance transfers allow a credit card holder to transfer funds from the credit card of a different provider. They are an optional feature and are often used as a means to consolidate credit card debt to save on interest, avoid paying multiple fees and charges and manage your finances more smoothly.
Some credit card providers have a maximum transfer amount. They may also have a policy of refusing a request for a balance transfer in the event that the credit card receiving the funds is not activated, cancelled, closed, or in default in some way.
Balance transfers do not occur between credit cards from the same provider.
A 0% purchase credit card is one that offers a fixed, interest-free period on purchases. This can vary but is often 55 days. Sometimes credit cards include this feature for an introductory period only, which can be as long as six months. It’s important to understand when this deal is no longer available to avoid accruing interest charges you weren’t expecting.
When you apply for a credit card, most providers assess both your credit report/credit score and your credit history within their own organisation.
If you have a bad credit history it may increase the interest rate you’re offered, or limit the maximum amount you can borrow. In some cases, you may not be eligible for a regular credit card. However, there is a range of credit cards specifically designed for consumers with bad credit (see “2. What types of credit cards are there?”).