Small loans are usually unsecured loans ranging from $300 to $2,000, with loan terms from 16 days up to 1 year. The turnaround time for a small loan is often fast. An application can be completed in a couple of minutes and, if approved, you could have the money the same business day.
What Do I Need to Know About Small Loans?
Fast turnaround time
Lenders often have a quick application process, with some offering 60-minute loan approval for loans completed within business hours.
The smaller loan amount and shorter loan term
Small loans often amount to $2,000 and below with a loan term capped of 16 days to one year.
Loans below $2,000 often do not require any form of collateral for loan approval.
How do Small Loans Work?
Application processes for small loans are usually 100% online. You will be asked to provide general information about yourself, your contact information, work status and residential status. You will also need to provide a minimum of 90-days worth of bank statements. This can be done online through the application form and is very secure. The assessment of bank statement data is a legal requirement for compliant lenders as part of its regulation commitment to accurately assess your affordability based on your current income and expenses.
To be able to take a wide variety of small loans, you need to meet the following eligibility criteria:
- You must be an Australian citizen or a permanent resident of Australia
- You must be at least 18 years old.
- You must be employed and have money deposited into your bank account.
- Have a good credit history
- Make a certain amount of income every month, as determined by the lender.
Whilst some lenders will provide an immediate approval decision, others may need to call to confirm certain details or request additional documents to finalise your loans. In both cases, loans can be turned around within 48 hours. Once you have read through and signed your loan agreement, funds are disbursed immediately.
Advantages of a Small Loan
The following are the advantages of taking out small loans:
- Convenience: You can apply for small loans through an online application form or the downloadable app of the lender. Only a few lenders will need to speak with you before giving a loan decision.
- No need for security or collateral: Small loans are often unsecured because the risk it entails on the end of the lender for small loans is minimal compared to medium- to large-amount loans.
- Perfect for emergencies: Some small loans can offer same-day funding provided you submit the loan documents before the daily cut-off.
Disadvantages of Small Loans
The following are the drawbacks of taking out small loans:
- High fees: Small loans have a monthly fee cap of 4% of the total loan amount and a one-time establishment fee of 20% of the loan amount. This rate is relatively higher in comparison with long-term personal loans.
- Limited loanable amount: Small amount loans provided by lenders are typically in the range of $100 to $2,000. If you are in need of a higher amount of loan, you will need to take out a personal loan instead.
How to Find the Best Small Loan in Australia?
Choosing the best small loan in Australia depends on your current needs and situation. Here are things to consider to help your search.
- Lenders with transparent fees: Always check for lenders with transparent fees. Check to make sure the cost of borrowing is in line with the regulation and there are no hidden or unexpected costs.
- Australian Credit Licence: Do not borrow money from a company that doesn’t have a visible Australian Credit Licence number.
- Check customer reviews: Customer reviews can tell you a lot about the customer support offered by a lender. It will help you understand if the lender pays attention to their borrowers.
You can use Friendly Finance to search for a small loan provider today. Through one application, we search our direct lender network to find you an eligible lender within minutes. Our search is free to use with no obligation to take out a loan if you are matched with a lender.
Are There Any Fees Associated with Small Loans?
The following are the repayment fees associated with small loans:
Monthly fees: The regulatory limit for monthly fees for small loans (loans amounting to $2,000 below) is 4% of the total loan amount per month.
Establishment fees: The regulatory cap for one-time establishment fees and application fees for loans amounting to $2,000 and below is 20% of the loan amount.
Other fees to consider are the default fees which should not exceed 200% of the total loan amount, and the loan enforcement fees incurred if you default on your payments. You will also need to consider and check for dishonour fees and handover fees if you fail to pay your loan on time.
Tips for Managing a Small Loan
The following are the tips for managing small loans:
Borrow within your means: It may be tempting to borrow as much money as possible. However, if you cannot afford repayments and default, it could lead to a cycle of debt. Make sure you only borrow what you need and meet your monthly repayments.
Do thorough research: before undertaking multiple loan applications, do your due diligence on the lender and the loan product they offer. This will prevent you from having ‘hard’ enquiry records on your credit report if you have unnecessary loan applications.
How Would You Make Repayments for a Small Loan?
Loan repayments for small loans are made in weekly, fortnightly, or monthly instalments via a direct debit arrangement from your nominated bank account. Regulations also set the minimum repayment period for loans $2,000 and below to 16 days, and a maximum loan repayment period of one year. Your repayment period and the amount will be outlined in your loan agreement so make sure you review this before signing.
How Do I Compare Loan Options Without Hurting My Credit Score?
To compare loan options without affecting your credit score, you can compare publicly-available loan information based on your specific loan needs and preferences. It is not recommended to make loan applications without doing thorough research first, as lenders might make ‘hard’ enquiries on your financial background. These ‘hard’ enquiries will pull down your credit score.
You can perform basic checks on the following when comparing small loans online:
- Monthly and one-time fees: Fees associated with the loan should not exceed the regulatory limit of 4% of the loan amount monthly, and 20% of the loan amount as the one-time establishment fee.
- Fee transparency: For any small loan, fees should also be transparent and should not include other unnecessary fees that will be deducted from your loan funds or will be added to your total loan payments.
- Turnaround time on approval and access to funds: Determine if you want to apply for lenders with quick loan approval, quick loan release, or both.
- Reviews online: Check whether the loan product has excellent customer service, quick loan approval, and an easy application process from customer reviews online. Check as well how some customers got rejected and how some got approved through the course of the application process.
Remember, Friendly Finance can be used to search a direct lender network without performing a credit enquiry. Our service is free to use so why not give us a go today.