Text version: Credit, loans and debt
The Australian Securities and Investments Commission (ASIC)
regulates products and services that affect your finances,
ASIC's MoneySmart website is designed to help you make smart
choices about your personal finances. It offers tips and tools to
give you fast answers to your money questions.
About this booklet
This booklet explains the basics of different types of credit
and loans to help you make better decisions when you borrow
Credit providers must lend responsibly
When you borrow money, you are protected by consumer credit
laws. Licensed credit providers must make inquiries about your
income and expenses to help them assess whether you can afford to
repay the money you want to borrow.
Before you sign a credit contract, credit providers must give
you a credit guide with information such as:
- their Australian credit licence number
- their contact details
- how to access their external dispute (EDR) scheme if you need
They must also give you an information statement about the
rights and obligations that you and the credit provider have under
the credit contract.
This should include:
- the amount of credit you are applying for
- how interest charges will be calculated and the rate
- how often you have to make repayments
- the fees and charges you will pay.
Smart tip: Think twice before you buy consumer
When you sign up for a loan or credit, you may be offered
consumer credit insurance (CCI) to cover your payments if you lose
your job, get sick or injured, or die. If you need to claim, the
money will go to your credit provider, not you. There are also
significant limits to CCI. For example, it may not cover all your
debts, and payments may stop after a fixed period. CCI is not
compulsory, so before you sign up, work out if it offers you real
value for money. See our page on consumer credit insurance for
How to make credit work for you
Follow our golden rules of borrowing to stay on track when you
- Do a budget - Use the budget
planner to work out your spending and how much you can
afford to repay each pay period.
- Check your credit report - Your credit report
has information about your credit history. Find out how to get a free copy of your
- Shop around for the best deal - Compare
interest rates, fees and charges. Even a small difference will help
reduce the cost of your loan or credit.
- Ensure the lender is licensed - Search ASIC's
- Check the total amount you'll pay - Work out
the repayments, including the interest and other fees and charges,
before you sign up for credit, a loan or a lease. ASIC's MoneySmart
website has calculators to help you do
- Keep up with repayments - Stay on top of your
repayments and pay more when you can, to save on interest.
- Get help if you can't repay your debts - Act
quickly if you're struggling to keep up with repayments. See our
information in the 'how to get help' section
- Complain if things go wrong - If you're
unhappy with a credit product or service, you should complain.
Contact details are in the 'how to
complain' section below.
Credit cards are convenient, but this can come at a cost. If you
only pay the minimum monthly repayment, it may take years to pay
off your credit card debt.
How credit cards work
Credit cards tend to have higher interest rates than other types
of credit, and the rate varies between credit cards.
You will be charged interest on all outstanding transactions if
you don't repay the amount you owe (the balance) each month (or
within an interest-free period). The interest rate can also be
higher if you use the card for cash advances.
How to choose a credit card
It might be easy to get a credit card from your current bank or
credit union, but you might find a better deal elsewhere, so shop
Comparison websites can be useful to find credit card offers,
but keep in mind that most sites only cover a portion of the market
and some may show sponsored links ahead of other results.
Interest-free periods vs no interest-free period credit
Credit cards with an interest-free period (where you pay no
interest for a certain number of days after a purchase) often have
high annual fees. But if you pay off your debt within the
interest-free period, you'll avoid paying interest, so the higher
fee may be worth it.
If you think you won't pay off all your credit card debt every
month, choose a card with no interest-free days. You'll usually pay
lower annual fees and a lower rate of interest, either from the day
of purchase or the day your monthly statement is issued.
Keep in mind that credit cards with special features (such as reward schemes,
discounts on certain goods and services, or cashback offers) often
have higher interest rates.
Balance transfer deals
You can get the full benefit of these offers by paying off the
balance transfer amount within the agreed period. If you don't pay
off the full balance before the transfer period ends, the balance
is often charged at the standard interest rate or the cash advance
rate (which may be much higher). The terms and conditions can
be different for each balance transfer deal, so make sure you
understand what they are.
If you get a credit card balance
transfer, cancel your old card and set up a plan to repay the
transferred balance within the agreed period.
Get a key facts sheet to compare credit cards
You can compare credit cards by using a 'key facts sheet', which
is usually included with the application for the card.
The key facts sheet will tell you:
- minimum repayments (and how they will be calculated)
- the interest rates for purchases, cash advances and balance
transfers (and how long the rates apply)
- promotional interest rate (if any)
- length of interest-free period (if there is one)
- annual and late payment fees
- fees for exceeding your credit limit (a card issuer must get
your consent before they can charge you for this).
Smart tip: Pay off your credit card
Use the credit card calculator on ASIC's
MoneySmart website to work out the fastest ways to pay off your
Personal loans tend to have lower
interest rates than credit cards, but the fees and charges can be
How personal loans work
You borrow an amount which you agree
to repay within a certain period (called the term), usually 1 to 5
years. You also pay interest on the amount you borrow, plus fees
If you make extra payments or pay out
the loan early, you may be charged an early termination fee. The
credit contract will explain the terms and conditions of the
Get the loan approved before you shop
Many credit providers will give you
'in principle approval' for a loan, so always organise your loan
before you go shopping. This way, you will know exactly how much
you can borrow and won't be tempted to spend more than you can
afford to repay.
To work out your loan repayments, use
the personal loan calculator on
ASIC's MoneySmart website.
Types of personal loans
It's a good idea to research and
compare different types of personal loans to find the best one for
Secured and unsecured loans
Secured loans usually offer lower
interest rates than unsecured loans, but you need to put up an
asset, like your car or home, as 'security' to get the loan. If you
don't repay the loan, the lender may (in some circumstances) sell
your asset to get their money back. If your asset is sold for less
than you owe, you will still have to pay the lender the
With unsecured loans, you don't have
to put up an asset as security, but the interest rate is usually
higher. If you don't repay the loan, the lender may take you to
court to get their money back.
Loans from a car dealer
While finance from a car dealer might
seem convenient, always check whether you are getting the best
deal. Use ASIC's MoneySmart Cars app to identify the
A dealer may offer you add-on
insurance products like loan protection, gap cover or tyre and rim
insurance. Think twice before you take up these offers as they may
not be good value for money, and only pay out in limited
circumstances. You'll also pay interest on the insurance premiums,
which will add to the cost of your loan. Visit our page about add-on
insurance for more information.
A car lease allows you to rent a car
for an agreed period of time, but you don't have the right to buy
the car. When the lease period ends, the car will be sold.
You could make an offer to buy the car
outright, but you will usually need to come up with a large sum of
money (a balloon payment) to buy it, and the leasing company does
not have to accept your offer. If you want to own the car in the
end, getting a lease may not be the right option for you.
Peer-to-peer (or marketplace) lending
Peer-to-peer lending, also known
as marketplace lending, matches people who have money to invest
with people who are looking for a loan. Instead of going through a
traditional lender, loans are organised through an online lending
Like a traditional loan, you pay back
the amount you borrow, plus interest, but you may be able to get a
lower interest rate if you have a good credit score. Peer-to-peer
lenders must lend responsibly, so expect to provide them with your
personal and financial details, just as you would with a standard
You should also research and compare
peer-to-peer loans the same way you would research any other loan,
and check for fees and charges. Also, check that the lending
platform has an Australian credit licence on ASIC's professional
Getting a home loan or mortgage is one
of the biggest financial commitments you'll ever make. To find the
best home loan, look for low interest rates and fees, and a loan
with features you'll use.
Once you get a mortgage, you can save
thousands by paying it off as quickly as you can.
How home loans work
Home loans tend to have lower interest
rates than other loans. The loan is repaid over an agreed period,
such as 25 or 30 years, and payments are usually made fortnightly
Until you pay off the loan, your
lender has security over the property. This means they can evict
you or your tenants or take possession of the house if you fail to
Saving your deposit
The bigger your deposit, the less
you'll have to borrow, and the more you'll save in interest. When
saving for a
deposit, you should also save for extra expenses, like stamp
duty and legal fees, and optional costs, such as pest and building
Avoid paying lenders' mortgage insurance
Lenders' mortgage insurance (LMI)
insures the lender if you default on your home loan. You can avoid
paying LMI if you have a deposit of 20% or more of the purchase
price of your home.
Going guarantor or co-borrowing
Think carefully before you become a
'co-borrower' or guarantee a loan for a
friend or family member. If they can't make the repayments on
the loan, you'll be responsible for the whole debt. If the loan is
secured against your home or car, you may end up losing them if you
can't pay out the loan you've guaranteed. If you're being pressured
to guarantee a loan, talk to a financial counsellor or get free
legal advice. For contact details for these services, see the 'how to get help' section.
Types of home loans
Generally, the more features a home
loan has, the higher the cost will be, so only get the features you
know will help you pay off your loan sooner.
Two of the most common features of
home loans are:
- A redraw facility -
allows you to pay extra money into your loan that you can take out
(or redraw) later if you need it. But there may be additional fees,
limits on the number of redraws and minimum redraw
- An offset account -
a savings or transaction account linked to your home loan. Instead
of earning interest on your savings, the money is 'offset' against
your mortgage. For example, if you have a $550,000 mortgage and
$30,000 in savings, you would only be charged interest on
$520,000. However, there may be additional fees or a higher
interest rate on loans with an offset account.
Principal and interest loan
Most people take out a principal and
interest loan, so this is often referred to as a 'standard' home
loan. Loan repayments go towards both the principal (the amount
borrowed) and the interest on the loan. These types of loans are
designed to be repaid in full over the life of the loan.
An interest-only loan is where
your repayments only cover the interest on the loan for an agreed
period (usually up to 5 years). At the end of this time, the loan
will change to a principal and interest loan.
Interest-only loans can be attractive
because the repayments are more affordable in the beginning, but
you won't reduce the amount you owe during the interest-only period
unless you choose to make extra repayments. If you only pay
the minimum amount, you'll also end up paying more interest over
the life of the loan than you would with a principal and interest
The interest rate on an interest-only
loan is usually higher than on a principal and interest loan. The
lender may also require a larger deposit.
Before you take out an interest-only
home loan, be sure to work out if you will be able to afford the
increased repayments at the end of the interest-free period.
Home loan interest rates
You can choose to fix your home
loan interest rate for a set period or choose a variable rate
loan, which means your repayments will change when interest rates
You can also have a loan that's part
fixed and part variable (also known as a split loan).
The table below lists some of the pros
and cons of each option.
- Set repayments make budgeting easier
- Rate rises won't affect you
- Rate drops won't apply to you
- Could be limits on extra repayments
- Redraw or offset accounts may not be available
- Break fees may apply if you can change or pay off the loan
within the fixed rate period
- Can make extra repayments
- More features, including redraw and offest accounts
- Easier to switch loans
- Makes budgeting harder, as interest rates could rise
- May cause mortgage stress if you aren't prepared for a rate
|Part fixed and part variable
- Best of both fixed and variable rate options
- Manage some of the risks of interest rate rises while still
being able to make extra repayments
- Rate drops will only affect the variable portion of the
How to compare home loans
When comparing loans, don't assume
you'll always get the best deal from the largest providers or the
Ask for a 'key facts sheet' from each
lender. This will give you the information you need in a set
format, so you can directly compare the features and fees of each
loan. Make sure you check the section that outlines the total
amount to be paid back over the life of the loan.
You can also look at comparison websites to see
what rates are generally available.
Using a broker
Mortgage brokers can negotiate with
lenders to arrange a loan on your behalf. They usually receive a
fee or commission from the lender, but some might charge you a fee
directly. If you are considering using a broker, find out their fee
structure, and compare the fees charged by different brokers.
Using a broker may save you time, but be
aware that they don't usually have access to every loan
Consumer leases, rent to buy and
Many stores can provide credit for household goods like a
computer, electrical appliance or furniture. Here are some tips on
how to make these deals work for you.
lease is a contract that lets you hire an item for a period,
usually between 1 and 4 years. You make regular payments (usually
fortnightly) until the term of the lease ends. You are not buying
the item by instalments, so you will not own it at the end of the
Check the cash price of the item you want to lease
Even though the lease agreement must state the total amount
payable, it does not have to state the cash price of the item. The
fortnightly payments may seem low, but you could pay up to five
times more than the retail price of the goods by the time your
How to get the best consumer lease
Different lease providers charge different prices for the same
product, so shop around and compare deals before you hire an item.
Consider getting a shorter lease, even if this means paying a
little more each fortnight; you might be surprised how much you can
Use the rent vs buy calculator to
compare the cost of a consumer lease with the cost of borrowing the
money to pay for the item instead. When you're comparing the cost,
be sure to add in any account-keeping fees. The lease agreement
will outline these, as well as any charges for missed repayments or
breaking the agreement.
Consumer leases can be expensive
There are currently no limits on the maximum amount you can be
charged under a consumer lease, so you could end up paying over
$1,500 for a dryer that could cost only $450 to buy outright.
Before you get a consumer lease, consider other payment options,
such as using savings, lay-by or a no or low interest loan. Find
out more about no and low interest loans.
Purchasing goods by instalments (or rent to buy)
With a 'rent to
buy' or 'rent to own' deal, you rent a new or second-hand item
(for example, a fridge or television) for an agreed period. You
make regular rental payments and, at the end of the rental period,
you can choose to pay an extra fee to buy the product outright. The
credit contract will say how much you'll have to pay to do
Check the total cost of the rent to buy deal
Over time, the total rental payments will add up to more than
the cash price of the item. Fees and charges will also add to the
The credit contract will outline the terms and conditions of the
rental agreement. Be sure to check for fees and charges, such as
account-keeping fees and penalties, if you miss repayments or break
You may also have to take out insurance to cover the cost of
replacing the item if it is damaged or stolen. Sometimes this is a
condition of the agreement.
Use the rent vs buy calculator to work
out the real cost of renting things for your home.
Paying out the contract early
You can pay out the contract early by choosing to return the
item. The credit provider will then sell it and subtract the amount
they receive from the sale, from the amount you have left to
Smart tip: Make sure you know what you are signing
Advertising can be misleading, so
before you sign up for a 'rent to buy' deal, check the contract to
make sure you have the right to buy the item you are renting. If
it's a consumer lease, you will not have that option.
Many stores offer interest-free deals that let you
take goods home before you pay for them. You can either pay by
instalments each month, or you can choose to pay the entire amount
in a lump sum at the end of the interest-free period.
How to pay off the deal in the interest-free period
If you only pay the minimum monthly repayment recommended by the
credit provider, you won't pay off the loan in full within the
If you miss repayments or don't pay off the balance by the end
of the interest-free period, you could be charged as much as 29%
interest, as well as additional fees. This rate is higher than most
credit cards. Before you sign up to an interest-free deal, check
the fees and charges, such as the application fee, monthly
account-keeping fees and payment processing fees on your credit
The interest-free deal
calculator will help you work out how much to pay each month to
avoid paying any interest.
Buy now, pay later services
Some payment services allow you to delay payment or pay by
instalments (often fortnightly) over time. Repayments can progress
over four fortnightly repayments or can extend over a few months,
even years. For example, Afterpay and zipPay are available when you
shop online or in store through approved merchants, and Certegy and
Brighte are available when purchasing some higher-value household
items, such as solar panels, air conditioners, blinds and shutters.
Unlike lay-by, you'll get the product straight away.
To use these payment services, you may need to provide your
credit or banking details, so your repayments can be deducted. You
may also have to pay the first instalment up-front.
These products are often advertised as 'interest-free' or '0%
interest' instalment contracts. While no interest is charged, there
are usually late fees if you don't make the repayments on time.
Some services also have monthly account-keeping fees or payment
Unlike other credit providers, these payment services may not be
required to assess whether you can afford the credit. And they may
not belong to an external dispute resolution scheme that could help
you resolve a complaint.
Before you sign up, make sure you carefully check the type of
contract you are agreeing to, its terms and conditions, your
repayment obligations and your protections and rights if things go
No interest loans
If you're a low income earner, you might qualify for a no or low
interest loan. These are run by not-for-profit organisations,
and the money you repay is then used to fund affordable loans for
other people who are on low incomes. Find out more about no and low interest loans.
If you receive Centrelink payments, you could request an
interest-free lump sum payment to buy the item you need. You will
then repay the money by receiving smaller Centrelink payments for
up to 6 months. For more information on advance payments, visit humanservices.gov.au.
Case Study: Rita uses a no-interest loan to buy a laptop for
As a single parent on a low income, Rita couldn't afford to buy
her son a laptop when he was starting high school. She searched
online for a solution, and came across a local No Interest Loan
Scheme (NILS) provider.
She explained her situation to the NILS adviser, who helped her
work out how much she could afford to repay. Working with the
provider, Rita was able to get a NILS loan to pay for the laptop so
her son had it in time for the start of high school.
For more information about these types of loans, see the
'no and low interest loans' section.
If you need money in a hurry, you may be considering a payday loan (also
called a small amount loan, cash loan or quick loan). These types
of loans may solve your short-term money issues, but they sometimes
lead to long-term money problems.
How payday loans work
Payday loans are high-cost, short-term loans. They include small
amount loans (loans of up to $2,000 that must be repaid between 16
days and 1 year) as well as loans borrowed over longer periods. You
will usually repay the loan by a direct debit from your bank
account or a deduction from your pay.
Who can get a payday loan?
Before they give you a loan, lenders will ask to see proof of
income, such as bank statements, as well as other documents to help
them check your financial situation. This could include copies of
bills, as well as statements showing you are up-to-date with your
rent or mortgage.
If you receive at least half of your income from Centrelink, the
repayments on all the loans you have (including the one you are
applying for) must not be more than 20% of your income. If they
are, you will not qualify for the loan.
Important: Don't get a payday loan to pay a utility bill
If you're thinking about getting a payday loan because
you're having trouble paying your electricity, gas, water, or phone
bill, contact your utility provider. Most companies have hardship
officers who can help you work out a plan to pay the bill in
instalments. They can also help you apply for emergency rebates and
vouchers that you can use to meet minimum payments.
What will a payday loan cost?
The fees and charges on payday lending are capped by law.
Credit providers are only allowed to charge:
- a one-off establishment fee of 20% (maximum) of the amount
- a monthly account-keeping fee of 4% (maximum) of the amount
- a government fee or charge.
Lenders are not allowed to charge interest on the loan, but
different payday lenders charge different fees. So, if you decide
to get a payday loan, don't just go with the first lender you find.
Use the payday loan calculator to
find out how much you'll pay in fees and how much the loan will
Fees for not making payments
The lender can charge you a fee if you default on your loan. The
maximum amount they are allowed to charge is up to twice (200%) the
amount of the loan. This includes any repayments you've already
You may also have to pay enforcement expenses if the credit
provider has to go to court to recover the money you owe.
Smart tip: Get a no-interest loan
Instead of getting a payday loan, why
not apply for a no interest loan or a
Centrelink advance payment (visit humanservices.gov.au for more information).
These are cheaper options that can help you solve your cash
No and low
The No Interest Loans Scheme and
StepUP loan program provides individuals and families on low
incomes with access to fair and affordable credit.
How to get a no interest loan
The No Interest Loans Scheme (NILS) provides loans of up to
$1,500 for essential goods and services, including:
- household items, such as furniture, fridges, washing machines,
stoves, dryers, freezers and heaters
- medical and dental services
- educational essentials, such as laptops, tablets and text
- car repairs and tyres.
To be eligible you must:
- have a Health Care Card/Pension Card or be on a low income
(take-home income of $45,000 per year for individuals or $60,000
per year for joint applicants)
- have lived in your current premises for more than 3 months
(this may be waived in some circumstances)
- show a willingness and a capacity to repay.
To find your nearest NILS provider, go to nils.com.au.
How to get a StepUP loan
The StepUP program offers fixed-rate, unsecured personal loans
for amounts between $800 and $3,000. There are no fees or charges
and interest rates are low. The loans can be used for essential
personal, household and domestic goods and services, such as
second-hand cars, computers and medical or dental treatment.
To qualify, you must have a Health Care Card or Pension Card, or
receive Family Tax Benefit A. You also need to have lived at your
current address for more than 3 months. Visit stepuploan.org.au for more information.
How to get help
if you can't pay your debts
Help is available if you're finding it hard to keep up with
repayments or you're struggling to make ends meet.
Talk to your lender
Credit providers have a legal obligation to respond to you if
you are having problems paying your loans. Whether they can help
you will depend on why you are having trouble making payments and
how long you think your financial problems will continue.
Apply for a hardship variation
You can ask your credit provider for a 'hardship variation'.
Many companies have hardship officers who can assess your situation
and help you work out a new repayment plan.
Here are some of the options you could discuss with your
- Extend your loan period, so you make smaller repayments over a
- Postpone your repayments for an agreed period
- Extend your loan period and postpone your repayments
for an agreed period.
If your credit provider refuses your application for a hardship
variation, they must give you reasons for their decision.
Only agree to repayments you can afford
When negotiating a repayment plan, make sure you can afford it.
There's no point agreeing to an amount that is more than you can
afford to pay.
If you find you can't stick to the new arrangement, tell your
credit provider straight away. Keep paying as much as you can
afford, even if it is not as much as the credit provider
Financial counselling and free legal help
You can get free financial counselling through community
organisations, community legal centres and some government
agencies. To find one in your area, use the find a
financial counsellor map.
To get help with your debts, you can also call the National Debt
Helpline to talk to a free financial counsellor. Call 1800 007 007
from 9.30am to 4.30pm, Monday to Friday. Or go to ndh.org.au for more
Free legal advice is available from community legal centres and
Legal Aid offices. Go to naclc.org.au
to find one in your area.
Important: What can a credit repair agency really do for
'Credit repair', 'credit fix' or 'debt solution' companies act
on your behalf to challenge incorrect listings on your credit
report. They may tell you they can fix your credit report and
solve your debt problems but, in many cases, they may not be
able to do what they say they can.
In most cases, default listings and other correct historical
information cannot be removed from your credit report. If
there is incorrect information on your credit report, you may
be able to fix it yourself by contacting the creditor to ask
for the information to be changed or removed. Credit repair
companies typically charge very high fees, which can still be
charged even if the company can't remove the listing.
Credit repair companies may also offer 'debt fix', 'debt
management' or 'debt solution' services to get you out of debt
and help you take back control of your finances. Many of these
solutions - including bankruptcy, debt agreements and
debt consolidation - can have serious long-term consequences
for you and your credit rating.
Before you consider contacting a credit repair agency, contact
a financial counsellor to discuss your options.
Visit our credit repair page to find out what
credit repair companies can and can't do.
complain about a credit product or service
If you're unhappy with a credit product or service, it's
important to talk with your credit provider or broker first. They
will have a process for dealing with your complaint. Be sure to
take notes of who you spoke to, the dates and what they told
Making a formal complaint
If you're not satisfied with the response, or if the problem
can't be sorted out, you can make a formal complaint through the
credit provider's internal dispute resolution (IDR) system.
This complaint should be made in writing. So, in your letter or
- the word 'complaint' in the subject line
- your name, contact details and the date
- details of the problem (stick to the facts)
- copies of relevant documents, such as receipts or invoices (do
not send the originals).
Keep a copy of your complaint letter in case you need to refer
to it later.
Visit our how to complain page for sample
complaint letters you can use as a guide.
A financial counsellor can also help you make a complaint if you
need support. See the 'how to get help'
section for contact details.
Complaining to an external dispute resolution scheme
If you're unhappy with the response you get from your credit
provider, you can contact a free external dispute resolution (EDR)
scheme. Your credit provider will tell you which scheme it belongs
to, or you can call ASIC on 1300 300 630 to find the right one.
Help with bankruptcy, credit reports or buying goods and
Australian Financial Security Authority (AFSA)
If you need information about debt agreements, personal
insolvency agreements or bankruptcy, contact AFSA on 1300 364 785
or visit afsa.gov.au.
Office of the Australian Information Commissioner
To complain about credit reports, or to get more information
about the privacy rules that protect your personal information,
or phone 1300 363 992.
State and territory fair trading agencies
For information about refunds and warranties on goods and
services, contact the agency in your state.
ASIC's MoneySmart website has calculators, tools and tips to
help you with:
Last updated: 16 Oct 2018