Small loans are defined by the amount they carry, which usually falls between the $100-$2,000 brackets. As the loan amount is small, the loan term allowed by lenders for small loans is also short, and the lending criteria set by lenders are also relatively flexible.
What Are The Options Available In Australia To Borrow Small Loans?
There are numerous small loan options available in Australia, offering borrowers a healthy variety to pick and choose a loan type that best fits their funding needs.
- Payday Loans
These are quick loans available with a short loan term, usually up until the next payday, and carry a small loan amount. Payday loan providers are able to approve loans for borrowers with a bad credit history as well, in some cases, making it the only source of credit for many borrowers. Instead of good credit history, lenders require borrowers to have an adequate source of regular income in order to qualify for a payday loan.
- A Bank Overdraft
An overdraft facility is usually offered by banks to their customers who are already maintaining an account with them. This facility allows customers to withdraw funds in excess of the available balance in their bank account, to be repaid quickly as overdrafts can be very expensive. Generally, banks allow amounts of up to $1,000 to be withdrawn as part of their overdraft facility.
- A Credit Line
A credit line shares the same features as described for a bank overdraft facility above, with the exception that it is managed through the opening of a dedicated account by the bank. The borrowing limits and applicable rates are defined by the bank at the opening of the credit line.
- Cash Advance
Credit cards allow customers to take out a cash advance on their cards, usually fixed at a specific limit. Cash advances come with a high-interest rate of more than 20% per year, to be charged on a daily basis from the day the cash is withdrawn.
- Loans For Those With Good Credit
Some lenders offer small loans to borrowers that have a good credit history, with cheaper rates and charges compared to other small loan options.
A Guide On Choosing The Best Small Loan Provider In Australia
Small loans work in a very similar manner compared to other loan options available in Australia. However, there are some pertinent questions that borrowers should ask when selecting the most suitable small loan provider for their financial needs.
- How much does the lender charge in fees?
Lenders in Australia may charge numerous fees on a loan, such as an establishment fee or a monthly fee, or an Annual Percentage Rate (APR), or a combination of both. Some lenders may also have extra charges in place contingent upon the occurrence of specific actions, such as early repayment of the loan amount. The goal is to select a lender that charges the least amount in fees without any hidden charges.
- What are the available loan terms?
Small loans can be given out for a period as small as 16 days and as long as 2 years, depending upon the lender and the loan type. It is important that borrowers know about available loan terms before applying for a loan as this has a direct impact on the borrower’s affordability.
- What is the borrowing limit?
Lenders are willing to provide small loans of amounts as high as $2,000, however, many lenders may have a smaller upper cap. Borrowers should evaluate whether their chosen lender is able to give out a loan amount that is required by them.
- What is the application process?
Small loan providers usually have an online application process that is fast and requires very limited information from the borrower to complete. Your chosen lender may provide a decision on your loan application within minutes of receiving the loan application, and disburse funds immediately as well. However, it may still take up to 24 hours for the funds to reach the borrower’s bank account.
- What is the total amount that would need to be repaid?
The total amount that needs to be repaid by the borrower depends upon three factors: the loan amount, applicable rates and charges, and the loan term. The higher any of these factors are, the higher would be the cost that the borrower would have to bear on their small loan.
Tip: It is wise to go with a lender that offers a good combination of rates/charges and a loan term that enables you to easily afford the loan repayments.
Pros And Cons
The following pros are associated with small loans:
- Quickly processing time
Loans may be disbursed in as little as an hour.
- Borrow only as much as needed
Loan amounts are limited, with the smallest loans starting at $100 or less. You can borrow only as much as is needed to cover expenses.
- Flexible repayments
Repayment dates can be set after the applicant’s payday to avoid any inconvenience.
The following cons are associated with small loans:
- Relatively high fees
Since small loans are mostly unsecured loans, the risk for the lender is high. Hence, the rates and fees charged by the lender are also high to cover for the associated risk.
Red Flags To Consider
When taking out a loan, it is of vital importance that borrowers carefully analyze all the terms, conditions, and rates associated with a loan to evaluate their affordability for it. In many cases, it might not be necessary to take out a loan as some expenses can be deferred until the required amount is saved through regular income.
Although a small loan may not seem like a huge debt obligation, it can cause problems if it adds on to an existing pile of outstanding debt. If a borrower already holds an extensive debt portfolio, then it might not be wise to seek out a small loan at all, especially if it would make it very difficult for the borrower to honor all outstanding loan obligations.
Also, every loan application has an impact on a borrower’s credit rating, regardless of the approval decision. Since most lenders conduct a credit check on every loan application, it has an impact on the credit history of the borrower. Hence, if a borrower files multiple small loan applications at the same time to increase the chances of securing a small loan, this can cause severe damage to their credit rating.
Can I get a small loan with a bad credit score?
Yes, small loans are less risky for lenders and, hence, borrowers with a bad credit score have a better chance of securing a small loan compared to a large one.
What is the maximum I can borrow as a small loan?
Small loans of up to $2,000 are available.
What is the fastest way to acquire a small loan?
Using a credit card or a credit line are two of the fastest ways to get a small loan, as these are pre-approved credit options.
How quickly can I get a small loan?
If applying for a small loan with a payday or any short-term lender, you may be able to get a small loan within the same day.