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Small amount loans – what do I need to know?


What is a small amount loan contract?


It is a contract where you borrow a small amount of amount up to $2,000 over a period of between 16 days and 1 year. You pay a much higher annual interest rate than the interest rate you pay on a credit card or a bank loan or mortgage.


How do I pay for a small amount loan?


You are required to make weekly or fortnightly repayments for the term of the loan contract.


How much interest can a lender under a small amount loan contract charge me?


A lender is able to charge you a one off establishment fee of a maximum of 20% of the loan value and a maximum monthly account fee of 4% of the loan amount borrowed. The lender is also able to charge you default fees and enforcement expenses.


For example:


Loan Amount Length of Loan Total Interest & Fees Charged Total Amt to be repaid

$600 3 months $192 $792

$600 4 months $216 $816

$600 5 months $240 $840

$600 6 months $264 $864

$600 7 months $288 $888

$600 8 Months $312 $912


Do small amount loan companies have to assess whether I can afford to pay the money back?


Yes, they must look at your income and expenses to make sure you can afford the loan repayments.


How does the lender check if I can afford to pay the money back?


They are required to obtain 3 months’ worth of your Bank Statements from you and examine your current income and expenses to decide whether you can afford the loan.


Is there a limit on the number of small amount loans you can have at any one time?


Yes, the law presumes that your 3rd small amount loan in 90 days is not affordable for you. However, the company can still give you the loan if it can show that the 3rd loan is affordable for you after looking at your income and expenses.


What happens to my payments if I lose my job or get sick?


You can ask the company for financial hardship help. This could involve reducing your payments until you get well or get another job.

What happens if I don’t pay?


There is a risk the company could take you to court and list a default on your credit report.


Where can I get help if I have a problem with one of these contracts?


You can get help by calling:

· a financial counsellor on 1800 007 007

· Legal Aid Queensland on 1300 65 11 88.


You can also lodge a complaint with the Australian Financial Complaints Authority at www.afca.org.au or 1800 631 978.


For more information about entering a consumer lease, visit:

www.moneysmart.gov.au/borrowing-and-credit/other-types-of-credit/consumer-leases



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