Small loans in Australia: rules and alternatives

Australia regulates small consumer loans more tightly than many English-speaking countries. Lenders need a licence, must check that a loan is not unsuitable before offering it, and face specific fee caps on the short-term loans often marketed as "payday" or "cash" loans. Even so, small loans remain expensive compared with mainstream credit, and the market attracts unlicensed operators and scammers.

This guide explains the national framework, the categories of small loans, how to compare costs and where to find cheaper help. Mini-Pret.com does not lend, broker or recommend lenders.

Who regulates consumer credit

Consumer credit is regulated at federal level under the National Consumer Credit Protection Act 2009 and the National Credit Code. The Australian Securities and Investments Commission (ASIC) administers the regime. Anyone who lends to consumers in the course of business, or arranges such credit, must hold an Australian credit licence or be an authorised representative of a licensee. You can check a licence on ASIC's professional registers.

Licensed lenders must belong to the Australian Financial Complaints Authority (AFCA), a free external dispute service for consumers. ASIC's Moneysmart website publishes independent guides and calculators.

Responsible lending obligations

Before offering credit, a licensee must make reasonable inquiries about your requirements, objectives and financial situation, take reasonable steps to verify that information, and assess whether the contract would be unsuitable. A loan is unsuitable if you could only repay it with substantial hardship or if it does not meet your needs. Ask for a copy of the assessment if you think a lender ignored your circumstances.

Small and medium amount credit contracts

Small amount credit contracts (SACCs)

A SACC is an unsecured loan of up to $2,000 with a term between 16 days and one year. Lenders cannot charge interest in the usual sense; instead the law caps fees at a one-off establishment fee of up to 20% of the amount borrowed plus a monthly fee of up to 4% of the amount borrowed. Default fees are also limited. The law also limits the share of a borrower's net income that can go on SACC repayments, a protection that matters most to people living mainly on Centrelink payments.

Lenders must warn borrowers about the cost of these loans and point to alternatives, and there are presumptions that a SACC is unsuitable in certain cases, for example if you are already in default on another SACC.

Medium amount credit contracts

Loans of $2,001 to $5,000 over 16 days to two years are subject to their own cost limits, made up of an establishment fee and an annual cost rate cap.

Buy now, pay later

BNPL products have been brought under the credit law, so providers now need a credit licence and must meet modified responsible lending obligations. Late fees and missed payments can still add up.

Credit reporting in Australia

Australia uses comprehensive credit reporting, so your file shows positive repayment history as well as defaults and hardship arrangements. The main bureaus are Equifax, Experian and illion. You can obtain your credit report free from each bureau and ask for errors to be corrected. A default on file makes mainstream credit harder to get; our page on a small loan with an Equifax default deals with that case.

Compare the real cost

Because SACCs are priced with fees rather than interest, compare the total amount you will repay, not just the fortnightly instalment. For other loans, look at the comparison rate, which combines the interest rate and most fees. A $1,000 SACC at the fee caps costs several hundred dollars over a year, far more than most bank products. Our small loan calculator can help you see the total.

Alternatives to a small loan

• No Interest Loans (NILS): community lenders offer no-interest loans for essentials such as appliances, car repairs or medical costs to people on lower incomes.
• Centrelink advance payments: many recipients can request part of their payment in advance, repaid through later payments without interest. See also our guide on borrowing while on JobSeeker Payment.
• Hardship arrangements: energy retailers, telcos and existing lenders must consider hardship requests.
• Financial counselling: the National Debt Helpline offers free, independent financial counsellors.
• Emergency relief: charities provide vouchers and help with bills.

Mainstream options to check first

Before turning to a specialist small-amount lender, it is worth asking your own bank or credit union what it can offer. Options include:

• a small personal loan with a fixed term and comparison rate, which may be far cheaper than a SACC if your file is in reasonable shape;
• a temporary increase on an existing credit limit, provided you have a clear plan to clear it;
• a hardship variation on a loan you already hold, which lenders are required to consider when you cannot keep up with repayments;
• low-interest loan programs run by community organisations in partnership with banks, aimed at people on lower incomes who need a little more than a no-interest loan.

Credit unions and customer-owned banks often look at your whole relationship with them rather than a score alone.

Checklist before you sign

• Does the lender hold an Australian credit licence?
• Do you know the total repayable and every fee?
• Would repayments leave enough for rent, food and bills?
• Is the lender an AFCA member?
• Have you asked about NILS, an advance payment or a hardship plan?
• Are you already repaying another small loan?

Scams and warning signs

• Requests for an upfront fee or "insurance" before the money is paid.
• Offers via social media or unsolicited messages promising approval regardless of credit.
• No licence number, or a number belonging to another business.
• Pressure to share your banking password or one-time codes.

Report scams to Scamwatch and unlicensed lending to ASIC. If debts already exceed what you can repay, speak to a financial counsellor before borrowing more. For a regional comparison, see our page on small loans in New Zealand.