Short-term Loans

Short-term loans in Australia

Short-term loans are easy to qualify for and can provide instant relief in a financial emergency. Offering between $70 and $2,000, they're ideal for expenses and emergencies that don't warrant the use of a traditional personal loan.

They're great because they'll help you resolve financial emergencies quickly and easily but, given their relatively high cost, should only be used when absolutely necessary.

How do short-term loans work?

Short-term loans are typically unsecured and have a short repayment term. You can borrow a small amount of money of up to $2,000 (this figure rises to $5,000 with some providers). The terms can range from 16 days to 24 months.

Short-term cash loans up to $2,000

In most cases, you'll have about a month to pay back what you owe. These loans are more commonly referred to as payday loans and carry certain caps, put in place to protect you from unscrupulous lenders. We'll investigate these later on when we look at the cost of short-term loans.

Most short-term credit providers in Australia give you the opportunity to extend the term of the loan if you cannot pay back what you owe on time. This may offer temporary relief, but the lender will continue to charge interest and so your debt will grow. Additional fees may apply as well but lenders will not be able to charge you more than 200% of your loan amount (for loans under $2,000).

Loans from $2,001 to $5,000

These loans offer longer loan terms that can range from 16 days to 24 months and are regulated by the ASIC. These loans are still classified as short-term and can, depending on your needs and income be repaid over a very short term or a longer one. This makes them ideal for tailoring them to your specific needs and budget.

Loan approval with bad credit

Even if the lender runs a credit check, it's not necessarily taken into consideration when the final decision is made. This makes these credit products easy to get even for people with bad credit. The main requirement is for you to have sufficient income to repay the loan.

Banks and other financial service providers are required to take strict measures to prevent customers from taking out loans they cannot afford. Lenders must make reasonable inquiries about your finances, requirements, and objectives and take reasonable steps to verify the information.

How much do short-term loans cost?

The average interest rate for short terms loans ranges from 8% to 13% but we must take into account the specific caps on loans as regulated by the ASIC. The caps below do not apply to Authorised Deposit-taking Institutions (ADI's) which include banks, credit unions, and building societies.

Loans ranging from $70 to $2,000

These are some of the most expensive loans which you will find in the Australian finance market. The annual percentage rate, which includes interest and fees, is usually several hundred per cent, even though certain caps apply.

For small loans up to $2,000 with a repayment term of 16 days to 12 months, you may not be charged more than:

• 20% or less of your loan amount as a once-off establishment fee
• a monthly maintenance fee of no more than 4% of your loan amount
• a government fee or charge
• 200% of the total loan amount in the case of default
• Debt collection fees as incurred by your provider

Short-term personal loans

These loans carry terms from 16 days to 14 months and a lender may not charge you more than a $400 once-off fee and 48% interest which must include all charges and fees. This interest rate cap also applies to loans over $5,000.

What are the risks of using a short-term loan?

The main risk of these loans comes from their high cost. If you are struggling to cover all of your expenses with your current income, chances are that the high cost of these loans will have a negative impact on your finances.

The short repayment term makes the risk of default higher. For these reasons, short-term loans should be used only in cash emergencies when you have no other options. If your car breaks down all of a sudden, for instance, and you need to fix it in order to be able to travel to work and make money, then the use of such a credit facility is justified.

What happens if you default on your loan?

If you default on the loan, the lender can take your case to a debt-collecting agency to recover their money and the expenses incurred from instituting recovery action. Your credit file will also suffer serious damage as a result.

The extension of the short-term loan is not an effective solution either. You can accumulate a considerable amount of debt and end up in a vicious debt cycle.

Where to get a Short-term loan?

Traditionally, short-term loans were offered by smaller independent microfinance companies but large banks and credit unions have caught up, many offering quick, pre-approved short-term loans to their existing client base.

The reality is that the short-term loans that banks offer do not differ much from those provided by other lenders in terms of features, cost and repayment terms, and structure.

The best strategy which you can adopt is to compare short-term loans from different lenders (banks and alternative lenders) and pick the one with the lowest cost and most favourable repayment terms and conditions.

Do I qualify for a Short-term loan?

While the eligibility criteria for a short-term loan will vary from lender to lender, most providers stick to the standard requirements, which we've summarised below.

To qualify for a loan you must be:

• 18 years of age or older
• An Australian citizen or permanent resident
• Be employed and earning in excess of $350 a week

Documents required when applying

1. ID in the form of a driver's license or passport (Medicare cards may also be accepted)
2. Proof of income in the form of recent payslips or Centrelink benefits
3. 3-month's bank statements
4. Proof of address (usually in the form of a utility bill)

Short-term loans on Centrelink

You should however note that if more than half of your income is derived from Centrelink it is required that your repayments may not exceed 10% of this income. If you receive Centrelink but it constitutes less than half of your income, your repayments must not exceed 20% of your Centrelink income.

Ready to apply for a short-term loan?

Short-term loans are fast and easy, one-time solutions, and should be used sparingly. If you're looking for a small amount of cash, can afford the repayments you'll be responsible for, and are not using the loan to pay off other debts, then you're good to go!

Below we've compiled a list of Australia's leading short-term lenders, from the large banks to the specialised boutique providers. Simply review the desired profile and hit apply to get started!