It may be tempting to take up the offer of a ‘payday loan’, but this is often the most expensive way of borrowing money. New laws make the actual costs more transparent.
Short term and small amount loans
From 1 March 2013, new laws have been put in place which cover short term and small loans of $2000 or less.
Small loans of less than $2000, which you must repay in 15 days or less, can no longer be offered. If you see such products advertised, or are offered these products, then you should contact the Australian Securities and Investments Commission (ASIC).
Small loans of less than $2000, which are offered over terms of between 16 days and one year, must display a warning which notifies you of your options.
From 1 July 2013, fee limits are now capped on small amount loans of $2000 or less. Credit providers can only charge the following:
- one-off establishment fee which is not greater than 20 per cent of the loan amount
- monthly account keeping fee which is not greater than four per cent of the loan amount
- government fee or charge – such as tax
- default fees or charges which cannot be greater than 200 per cent of the amount loaned should you fail to pay back the loan
- enforcement expenses to cover the costs of the credit provider taking you to court should you fail to pay back the loan.
Authorised Deposit-taking Institutions (ADIs) such as banks, building societies and credit unions are exempt from the above and continuing credit contracts, such as credit cards, are excluded.
Find out more about small amount loans from Moneysmart.gov.au.
Medium amount loans and all other loans
From 1 July 2013, the fees and charges which are applied to loans of $2001 to $5000 in value, and which are to be repaid over a period of 16 days to two years, have been capped as follows:
- one-off fee of $400
- maximum annual interest rate of 48 per cent, which must include all other fees and charges
ADIs such as banks, building societies and credit unions are exempt from these fee caps.
Find out more about the changes to laws surrounding personal loans.