What is Small Amount Credit Contract?

Small amount credit contract is the technical name used for loans that offer up to $2,000 with repayment terms of between 16 days and 2 years. These loans are also known as short-term loans, payday loans or small loans and are regulated by the Australian Securities and Investments Commission (ASIC).

These are loans that require a warning. So, ahead of offering this loan, credit providers are required to display a warning to notify you of your options. The fees charged on small amount credit contract are capped. Credit providers can only charge you a one-off establishment fee that should not be more than 20% of the loan amount, a monthly account keeping fee that should not be more than 4% of the loan amount, a government fee or charge, default fees if you fail to pay back the loan, and enforcement expenses that consist of the costs incurred by the credit provider for going to court if you do not repay so that they can recover the money you owe under your credit contract.

Small amount credit contract is a feasible solution whenever you are in need of money in a hurry. Though you can only borrow it for a short term, they are high cost loans. In order to repay back the loan you can opt for a direct debit from your bank account or a deduction from your pay. The loan repayment amount shall be deducted on the same day you are paid. So, make sure you have enough cash in your account to cover the repayment.

Before applying for these loans make sure you shop around. The fee charged by different lenders varies, so do not go with the very first lender you find. The credit providers of Australia are required by law to lend money responsibly. So, if they think the offered credit is not suitable for you, they must not lend you money. Further, if you have already applied for two or more small loans in the last 90 days, you are spending all of your monthly salary, unable to meet other expenses, and you have defaulted another small loan, you are less likely to qualify for another small amount credit contract.

When you default on small amount credit contract you will be charged a default fee until you repay the outstanding amount in full. In such a scenario, the maximum a lender can charge you is twice the total amount of the loan, which shall also include any repayments you made and the default fees. It is vital that you find out when you will have to repay the loan and what will happen if you miss a repayment before you sign the loan contract.

If you face any problem with your loan, if you think you are charged too much or you were offered unsuitable credit, either talk to your credit provider or get free legal advice. You can also opt to negotiate repayments with your lender if you are struggling paying back the loan. You can also talk to a financial counsellor about your money problems.

Small amount credit contract may sound as quick cash fix, but take your time and make sure it is the right choice for you and check for cheaper options.