Borrowing basics

Stay in control of your credit and loans

Credit can help you do many things: buy your dream house, get a new car or pay for essential household items. But getting into debt is easier than getting out of it. Fees, charges and interest rates can make credit very expensive, especially if you borrow more than you can afford. Find out how to stay in control of your credit and loans.

Work out if you can afford to borrow

If you're thinking about borrowing money, ask yourself the following questions.

What am I borrowing money for?

Is it for something you need, or something you want? Are you borrowing money to help someone else? See loans involving family and friends before you go ahead. Or do you need credit to pay electricity and other bills? See trouble with debt for options other than borrowing.

Is borrowing my best option?

There may be other ways to get what you want without borrowing money. For example, you can save and buy the item outright, or put it on lay-by and gradually pay it off. If you are on a low income, you may qualify for a no or low-interest loan.

Have I checked my credit health?

Have you got a free copy of your credit report? Credit providers use your credit score and report to assess your capacity to repay a new loan, credit card, or mobile phone plan, or if you seek to increase your limit on an existing credit card.

A poor credit report could affect any loans or credit you apply for in the future, so it is important to make sure the information is correct. See credit repair for things you should be aware of when dealing with a credit repair agency, and how to save money by doing your own credit repair. 

Can I afford the repayments?

Work out your current spending and how much you can afford in repayments.

Budget planner

Allow for interest rate rises, unexpected expenses and financial emergencies. Before you borrow, try living on less for a few months to see if you can afford the loan.

Is now the right time to borrow?

Think about any changes that might affect your income. How secure is your job? Are you planning to start a family or take time off for study? Do you have any health issues that may mean you'll earn less for a while? If you said 'yes' to any of these questions, you might be better off saving now and borrowing later.

Know who and what you're dealing with

Credit providers and brokers that are not licensed are operating illegally in Australia. Make sure you only deal with a company or person who is licensed.

Smart tip

If you decide to borrow, compare products, interest rates, fees and charges. See getting the best credit deal for tips.

Search ASIC Connect's Professional Registers to check your credit provider has been licensed or you can phone ASIC's Infoline on 1300 300 630.

Make sure you know what you're signing up for before you go ahead. Check the terms and conditions of any loan contract, including penalties for missed repayments or for paying off a loan early. See credit contract

Warning about loan scams

Be suspicious if you are contacted out of the blue by a company offering loans with low interest rates, as they could be operating a loan scam. Also be cautious if you come across a website offering loan applications online as you will need to check they are legitmate before you apply for a loan. See our tips on how to pick a loan scam.

Don't be pressured into buying

Salespeople use different techniques to persuade you to buy their product or service. Learn how to avoid sales pressure so you don't end up with something you can't afford and/or don't really want.

Making repayments

The best way to stay in control of your debt is not to fall behind on your repayments. See making repayments for tips on paying off your loans faster.

Work out your how much your repayments will be.

Mortgage calculator

Get help if you can't pay your debts

It's important to act quickly if you're having trouble making repayments. Keep paying what you can afford. Even though it can be difficult to face the problem, ignoring it will only make things worse. Contact your credit provider without delay. There are places you can go for help. See trouble with debt.

Complain if things go wrong

Try to resolve any problem with your credit provider or broker first. If you aren't satisfied, go to ASIC's how to complain webpage or call ASIC's Infoline on 1300 300 630.

Case study: Diane gives herself room to move

Young woman looking at her budget on a laptopDiane took out a home loan 3 years ago but her repayments have gone up due to a few interest rate rises. She had budgeted for these interest rate rises when she took out her loan, but things are still tight.

Now that she has bigger repayments, Diane decided to use a budget planner to work out how much she was spending on her mortgage, food, transport and petrol. The budget planner helped her see where she could cut back on her spending, like car pooling 3 days a week to save on petrol. Diane feels better now that she has fine-tuned her budget and knows exactly how much she has for her living costs.

What if your loan is rejected?

If your loan is rejected, there are some things you can do. To find out more, see loan rejection.

Whether you're getting a home loan or thinking about increasing your credit card limit, be a smart borrower and keep your debts under control.

Related links

Last updated: 24 Oct 2018