If you find yourself needing cash quickly, you should consider a short-term loan as an option. They are also commonly referred to as cash loans, little loans or small amount loans. Here we explain the basics to help you become more informed on this type of loan.
A short-term loan sits under the ‘Small Amount Credit Contracts’ bracket (SACC), which can be an amount of up to $2,000 and must be paid between 16 days and 1 year. You will either repay the loan by direct debit from your current bank account or deduction from your pay.
The repayment schedule will typically be set up on the day you’ve been paid, so always make sure there is enough money in the chosen account to cover the repayments and other expenses.
Who are they for?
Anybody can apply for a short-term loan. SACC providers must lend responsibility by law and should not lend to anybody who isn’t financially able. For example, there are a number of reasons why a lender may not issue you credit:
- You are currently on a small loans contract with another provider
- Already in debt or have a lower than average credit score which is deemed un-creditworthy
- You have recently defaulted on a previous small loans agreement
As a standard request, the lender will ask you for your previous 90 days’ worth of bank transactions. This is so the provider can assess your outgoings and affordability for the loan you applied for. If your income is paid into more than one account, you will need to provide 90 days of statements for each account used.
These statements can be uploaded electronically as part of the application process with the lender. Alternatively, you can fax or email copies as lenders typically accept multiple channels of communication for this. As previously stated, every lender by law must fully assess your ability to make the repayments set forth in the final loan agreement. In some instances, they may request further documentation to assist with their underwriting process. They may request one or more of the following:
- Payslips or Centrelink statements
- Copies of utility bills
- Copies of additional credit agreements or accounts showing income/outgoings
- Rent statements
The amount of additional documentation at the request of the lender may depend on whether you have any pre-existing history with that provider or not. So if they have dealt with you in the past, they are less likely request further documentation.
If you receive at least half of your income from Centrelink benefits, the repayments on all of your loans (including the loan you are applying for) must not exceed 20% of your total income. If they do, you will not be eligible for a loan. Some lenders will not take Centrelink customers, so bear that in mind when applying.
What will it cost to get a loan?
All fees and charges are set with strict caps (limited to a maximum amount) by the Government. Whilst there are limits on fees, the exact amounts vary depending on the amount of money borrowed. Lenders are within their means to charge under the following conditions:
- One-off establishment fee of 20% (of the total amount loaned)
- A monthly fee of 4% (of the total amount loaned)
- Government fee
- Default fees or charges for late repayments (review the lender terms and conditions for breakdowns)
- Enforcement expenses (if you fail to pay back the loan, these are the costs of the lender going to court to recover the money owed)
Lenders are not allowed to charge any interest but if you default on your loan, you will usually be charged a default fee until you repay the loan off in full. The maximum a lender can charge is twice (200%) the total amount of the loan. This does include any repayments that were made during the contractual period, plus default fees.
Alternatives to short term loans
There are other options available in the market which may be cheaper and more appropriate based on your circumstances and reasons for the loan. See below:
- Should you be having issues paying your electricity, gas or general utilities, contact your utility provider and negotiate a repayment structure that fits your means. The majority of companies have hardship representatives who can help you with a plan to pay back over a series of instalments.
- NILS or StepUP loan. Should you be on a low income, you might be able to qualify for a lower interest loan or in some cases with no interest.
- Centrelink advance payment. If you’re eligible for Centrelink benefits, you may qualify to get an advance payment on your benefits, with no interest charges. See the Department of Human Services website for more information: Department of Human Services.
Always assess your options and look around before making a decision. If you decide to apply for a short-term loan, make sure you fully understand the agreement and the associated fees prior to signature.