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What to Know about Small Loans

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Small Loan Information

Many Australians seek loans each year, and great deals of the loans are small; totaling $2,000 or less. In fact, it’s very common that people seek small loans to cover financial emergencies that may happen to their home, car, or even selves. The great news is that there is not a shortage of small loan types or lenders. The following information is perfect if you are looking for information on small loans, such as the types, fees associated, and other useful tips.

What exactly are small loans?

Small loans are also commonly referred to as “personal” or “payday” loans, and are generally less than $2,000 in total. Such loans can be obtained for emergency situations, moving, or simply to hold someone over until his or her next paycheck. Repayment periods on them usually span from 16 days up until 1 year.

Types of Small Loans

Secured loans are those that are collateral-backed. In other words, in the event that the borrower defaults on the loan, there is a security backing it. In terms of small loans the collateral is usually electronics, jewelry, and other small items of value.

Personal or Payday loans

are popular among Australians. These are small loans that are usually rather easy and quick to obtain. The only thing to watch with both of these loan types is that the fees and associated rates tend to be higher than normal. Yet at the same time, these can be perfect for many because there are lenders who offer small personal loans or small payday loans to people with bad credit or no credit.

Community Organizations

also offer loans to certain people throughout the country. For instance, there is an organization called Good Shepherd Youth and Family Service that operates over 400 locations to help disadvantaged Australian families. Though the loans are not large, they will help in certain situations. Another great example of community organizations that can help in times of financial troubles are utility companies. If you find yourself needing help with utility bills you may be able to work out a deferment or payment plan with the provider, rather than taking on debt to pay the expenses.

Variable or fixed rate loans

are offered by nearly all lenders. A variable loan is one that features a variable interest rate. What this means is the interest rate will change from time to time, depending on the lender. On the other hand, a fixed rate loan is one where the interest rate is fixed and never changes during the duration of the loan.

A NILS Loan

, or No Interest Loan Scheme, is offered by over 250 local community organizations throughout Australia. This loan type was created to provide low income families and individuals access to affordable, fair, and safe credit. NILS loans range from $300 up to $1,200 and can be used for essential services and goods such as car repair or appliances. The loan payment duration ranges anywhere from one year up to 18 months. This is not the only type of loan offered by Centrelink. In fact, they serve the low income sector and offer several types of helpful loans.

Who is Eligible for a Small Loan?

Though the loans may be rather small, not everyone will be approved. The law prevents financial institutions from irresponsible lending. Upon applying for any kind of loan the lender will check your credit report, verify your income, and make a determination of your creditworthiness. While some of the loans mentioned above are created for low income families and individuals, if the borrower is not in a position to repay the loan, they will not be approved.
Hence, any individual or family that has verifiable income and a proven track record of paying past debts will be approved for a small loan. During the loan process you will be asked for a great deal of documentation such as bank statements, Centrelink statements (if applicable), utility bills, pay slips, rental receipts, and more.

What Costs are Associated with Small Loans?

There are many fees you are expected to pay with small loans. The good news is that in July of 2013 the Australian Government placed a cap on loan fees. This means that the charges and fees associated with small loans are limited to maximum limits. While loan fee amounts will vary based on the amount of money borrowed, here is a look at the fees lenders may legally charge:
• An establishment fee is a one-time charge that equals up to 20% of the loan value
• A government charge or fee
• Default charges or fees
• Monthly account maintenance fees of up to 4% of the loan value
• Other enforcement expenses can be charged as a way of collecting money from you if you do not repay the loan

Useful Tips and Important Considerations for Borrowing Money

• If the loan you are applying for will be used to pay other bills, you could be setting yourself up for serious debt problems. Rather than borrowing a small loan, it may be a good idea to think about non-borrowing options and speaking with a no-charge financial counselor.
• Before accepting a loan, ensure you understand all costs associated with the loan. Will you benefit enough from the loan to justify the costs?
• If your credit is already questionable, applying for loans can negatively affect your credit even more.

Conclusion

In conclusion, most everyone finds themselves down and needing to borrow money at one point in their life or another. Regardless if your car needs repair, you have medical bills, require home repairs, or simply need extra cash until your next payday – there is a small loan that will fit your needs. The best thing you can do is go into the financial institution of your choice with the knowledge of loan types, fee limits, and an idea of what it is that you want. This will not only make obtaining a loan much less stressful but it will also ensure that you get exactly what you want!

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1 Comment

  • Lonitra
    September 3, 2015 Reply

    Full of salient points. Don't stop beneivilg or writing!

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