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
You are borrowing money if you sign up
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 firstname.lastname@example.org.
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.
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
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
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
- 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
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 let you buy things now and pay for
them later. They can be very expensive with high fees and
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
Work out how you can pay off your card faster and how much you
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.
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
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
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
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
Last updated: 07 Nov 2018