Borrowing money

If you get a loan or buy something on credit you are using someone else's money and you have to pay a fee. It's much cheaper to save up your own money to buy things, instead of going into debt. But if you do need to borrow, here is some information to help you understand and manage your loans and credit cards.

Different types of credit

Man and woman looking at borrowing moneyYou are borrowing money if you sign up for:

MoneySmart does not lend money

ASIC's MoneySmart website does not lend money or arrange loans but is happy to answer questions you might have about borrowing money. You can call our Indigenous Help Line on 1300 365 957 or email us at

Fees and charges

With some loans, you will have to pay fees and charges instead of interest. Fees and charges are set amounts so you know what you have to repay. But, with fees and charges, you will still have to pay them even if you pay early. This is different to interest which reduces as you repay money.

Interest rates

When you borrow money you may have to pay interest for the use of the money borrowed. Always check how much it will cost you to borrow the money. The higher the interest, the more money you will have to pay back. Also find out if the interest is charged monthly, quarterly or yearly because this can make a big difference to how much you owe.

Use the personal loan calculator to find out how much you will be charged when you borrow money.

Personal loan calculator


No interest loans (NILs)

No interest loans are for people on a low income who need to buy an essential item like a fridge, washing machine or computer, or pay for a service like medical or dental treatment. They have no fees and no interest.

Find out more about no interest loans.

Payday loans (small amount loans)

Limits on fees for payday loans

A small amount loans (payday loan) is a loan of $2,000 or less that you repay over a longer amount of time, between 16 days and a year. You are only allowed to be charged certain fees on this type of loan.

The only fees you can be charged are:

  • An establishment fee (20% of the amount lent)
  • A monthly account keeping fee (4% of the amount lent)
  • Government fee or charge
  • Default fee or charge (if you are in default - that is, fail to pay back the loan - the lender can't collect more than twice the amount you borrowed and this includes any repayments you make under the contract)
  • Enforcement expenses (if you fail to pay back the loan, these are the costs of the lender going to court to recover the money you owe them)

You cannot be charged interest on a small amount loan. Find about more about payday loans

Case study: Paul gets a payday loan

Paul needed to borrow $200 in a hurry. He got a payday loan and had 6 months to pay it back. He was charged $88.00. Paul hurt his leg and was off work for a week. He was short of money and didn't pay the loan back on time. He didn't tell the lender he was having trouble paying and was charged a default fee of $40. Two weeks later, when Paul got paid again, he had to pay back $328 - the loan, the fee and the default fee! Paul should have spoken to the lender when he was sick to tell him what had happened and when he would next get paid. If Paul had done this, the lender might have not have charged him the default fee.

Credit cards

picture of credit cardsCredit cards let you buy things now and pay for them later. They can be very expensive with high fees and charges.

Here are some tips on using your credit card:

  • Pay the full amount you owe every month. If you don't pay your credit card balance in full each month, it will take you a long time to pay off the total and you will pay a lot of extra interest.
  • Don't get cash out of your account using your credit card. You will have to pay more in fees. Even if you pay the full amount back within the month, you still have to pay extra for withdrawing the cash.
  • Use our credit card calculator. See how your debt can grow. 
  • Read your credit card statements carefully. If you have been charged incorrectly contact your bank or credit union immediately. For more information see how to complain.
  • Be careful with store cards. Before signing up to one of these credit cards, find out how much the fees and charges are. They can be much more expensive than other credit cards.

Work out how you can pay off your card faster and how much you can save. 

Credit card calculator

Case study: Gary paid off his credit card in over 8 years

Gary signed up to a credit card offer he received in the mail. He went straight to the shops and bought a fridge for $1,000. A month later, Gary got the bill in the mail. The monthly minimum repayment was only $20, so that's all he paid. Gary was still paying for the fridge over 8 years later. In that time, he had paid an extra $500 in interest.

For more information see credit cards.

Interest-free deals

Big stores also sometimes offer interest-free deals for things like computers, electrical appliances and whitegoods. These deals might not be as cheap as they seem. Also, be careful because when you sign on for these deals the store will probably send you out a credit card, even though you didn't ask the store for one. Using the credit card could mean you get into more debt. Remember, If you think you will struggle to meet more expenses, you should not use the card.

Tips for using interest-free deals:

  • Check the fees. Interest-free does not mean cost fee, you may still have to pay ongoing fees.
  • Pay off the deal before the interest-free period ends. If you don't you will be charged a very high amount of interest

Case study: Jenni buys a TV interest-free

Jenni bought a TV for $500, with a 12-month interest-free period. She was charged $20 a month in fees during the interest-free period. At the end of the interest-free period, Jenni had not paid off the TV and so she was charged 30% interest. In the end, the TV cost Jenni $900 (the actual cost, fees and interest).

Remember if the contract is a small amount credit contract (not a credit card) you cannot be charged any interest regardless of how it is advertised.

For more information see interest-free deals.

It's cheaper to save your own money than to borrow. But if you do borrow check your budget to make sure you can afford the repayments. For more information listen to our audio segments on banks, loans and credit cards.

Related links

Aboriginal and Torres Strait Islander people are advised that this website may contain images and voices of deceased people.

Last updated: 07 Nov 2018