When push comes to shove, you may consider taking out a small loan to meet your financial responsibilities.

What is a small loan?

A small loan is a type of loan that allows you to borrow a small amount of money – typically ranging from $500 to $2,000 – for the short term. Some small loan providers can allow applicants to borrow as low as $200.

Payment terms can range from as short as your next payday up to 12 months. However, the usual payment terms are three to six months with monthly fees and charges applied.

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There are many lenders to choose from, but it’s important to be aware that there are no industry standard when it comes to the fees and charges that lenders apply. This means that borrowing the same amount of money from different lenders can still result in varying monthly fees and total amount payable.

A small loan is a type of loan that allows you to borrow a small amount of money – typically ranging from $500 to $2,000 – for the short term. Some small loan providers can allow applicants to borrow as low as $200.

• One-time establishment fee - The government limit is at 20 per cent of the total borrowed amount
• Monthly fee - Maximum is 4 per cent of the loan amount
• Default charges - Up to 200 per cent of the loan amount, including repayments plus default fees
• Enforcement expenses - This is only charged if you fail to pay off the loan and the lender takes you to court

This is also known as small personal loan, fast cash loan and cash advance loan, among other names.

Am I eligible for a small loan?

Lenders require applicants to satisfy the basic eligibility requirements han 50 per cent of your income

• Have an Australian bank account (if money will be paid out directly to your account)

If you satisfy the conditions above, you may be eligible to take out a small loan. However, approval of your loan application still depends on your current circumstances.

Where can I get a small loan?

You can get a small loan anywhere in Australia, either through a physical lending facility or through online lenders. Simply run a search for small loans that are available in your area and you will immediately see different lenders that offer small cash loans – even to applicants with a bad credit score.

There are many lenders to choose from, but it’s important to be aware that there are no industry standard when it comes to the fees and charges that lenders apply. This means that borrowing the same amount of money from different lenders can still result in varying monthly fees and total amount payable.

How to apply for a small cash loan

The loan application is easy once you’ve found a lender whose terms are acceptable to your current financial circumstances.

You simply need is to identify the amount of money you will borrow and provide your personal information and any document that the lender requires. Afterwards, just simply need to wait as the lender processes your application. If your application is approved, the lender will send the money to your account or give you the cash.

How much does a small loan cost?

As previously mentioned, there is no standard amount for the fees that lenders charge. They are also disallowed by the government from applying interest on the loan. However, all small loans apply the following fees:

• One-time establishment fee
  The government limit is at 20 per cent of the total borrowed amount
• Monthly fee
  Maximum is 4 per cent of the loan amount
• Default charges
  Up to 200 per cent of the loan amount, including repayments plus default fees
• Enforcement expenses
  This is only charged if you fail to pay off the loan and the lender takes you to court

The fees and charges that lenders apply to the loan can determine how high you will be charged each due date, so make sure to look for lenders with reasonable fees before signing any contract.

When should I take out a small loan?

While taking out a small loan may seem convenient, especially for those who have a bad credit score, it’s highly recommended to research information about other options before applying for one.

If you simply need to catch up on utility bills, there are several options for managing bills to consider.

One option is to contact your service provider and request for a hardship provision or negotiate a debt repayment plan to help you manage your bills.

You may also seek the advice of a professional who can suggest other options according to your personal circumstances. The National Debt Helpline (1800 007 007) also provides free debt management advice from financial counsellors.

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