People use loans for a variety of reasons. Whether you are looking to buy something you can’t afford without a loan (like a car or a laptop), you find yourself not being able to afford your bills, or just need some cash.

The most common types of loans you will come across are Bank Loans, Small loans/Cash loans and No/Low-interest loans. If you are in financial difficulty you can call Financial Counselling Australia for free advice.

No-Interest Loans

There is a National No Interest Loans Scheme run by Good Shepherd Microfinance. Unlike ‘payday lenders’ and banks they are a national community organisation that does not make money from the loans they give out. The loans are normally between $500 and $1,200 and are normally for educational expenses, household items like fridges and washing machines and medical expenses.

How do these loans work?

To qualify for one of these loans you need to be a low-income earner. Normally, this is determined by whether you are eligible for a Low Income Healthcare Card which you are eligible for if you receive Centrelink payments. Next, you will need to make an appointment for an interview where your income and spending are worked out to find out whether you can repay a loan. The loan can then be paid automatically out of your Centrelink payment if you have one.

Things to remember

• You can’t apply for these loans just for some extra money; it needs to be for something in particular that is approved by the organisation beforehand like a laptop, fridge, or new glasses.
•  The money won’t be paid into your account, it will go straight to the company you are purchasing your item from.
• You can only have one NILS loan at a time, but once it is paid off you can apply again.

To find out more read our article on how no-interest loans work. 

Small loans

It’s common to think that a small loan or a cash loan is a fast and easy way of getting the money you need. These loans can be the most risky as they are given by businesses that are not regulated in the same way as banks. So before you go ahead and sign a contract there are definitely a few things you need to consider.

Businesses that give cash loans or quick loans are often called ‘Payday lenders’ or ‘high-cost short-term lending’. The fees and interest rates on the small loans that many offer can be quite large and you could end up paying way more than you actually borrowed in the first place!

How do these loans work?

A small amount loan is a loan of up to $2,000 that must be repaid between 16 days and 1 year. You will normally have to pay it back through a deduction from your bank account.

You will need to fill out an application and take in important documents like bank statements, bills, credit card statements and possibly other documentation the credit provider requests. This will help them to determine if you can afford to pay back a loan.

You will normally need to pay an establishment fee at the beginning of the loan, monthly account-keeping fees plus interest. This all paid on top of the amount that you borrow. All these fees mean that it is extremely important to read all the information and the contract before you receive the loan so you know exactly what you are going to be paying and if you can afford it.

Things to remember

• If the payments are being direct debited from your account that means you always have to make sure you have money in your account. If not, you will get an overdrawn fee from your bank which can be around $10 depending on the bank.
• When you are figuring out how much the regular payments will be, make sure you take into account the set-up fees and any other additional costs.

To find out more read our article on payday loans.

Bank Loans

You might be considering a bank loan if you are thinking about buying a car or needing a larger sum of money for something like a holiday. These loans can often be between $5,000 to over $10,000, depending on the amount you can afford.

How do these loans work?

Firstly, you will need to apply for the loan to find out if you are eligible. This can be a lengthy process as the bank will want to know as much information as they can about your finances. Will have initial eligibility criteria that you have to meet which normally include:

• Being 18 years old
• Have a regular income
• Have a good credit rating
• Hold Australian citizenship or permanent residency, and
• Have an Australian address

Things to remember

• The bank will do a credit check on you to find out if you have any outstanding debts
• If you want to see your credit report before you apply, click here to find out more about getting your free 12-month credit check.
• Different banks have different income requirements for loans; some have a $25,000 a year minimum income to apply. 
• To make sure you can afford a loan, try Money Smart’s personal loan calculator
• To find out more, read our article about how to get a bank loan.

Before you think about getting any kind of loan, it’s good to go over the basics of borrowing money, make sure you have thought about other options, and ensure that you are in the financial position to feasibly pay off this loan. There is some great information about borrowing money on Money Smart’s website.

If you are having a financial emergency

If you are in need of money urgently, Money Smart has great Australia-wide information and contacts for housing, income support, emergency relief and financial counselling. The Department of Human Services also has some helpful information on crisis and special help payments that you might be eligible for. 

Check out Financial Counselling Australia to find a counsellor near you, or call 1800 007 007 to speak to one on the phone for free advice.

You can also call the National Debt Helpline, they are open every weekday from 9.30am-4.30pm and their chat is open until 8pm. They offer free counselling to figure out a debt solution that will suit you. 

Aboriginal and Torres Strait Islander people can call Mob Strong Debt Helpline on 1800 808 488. Monday to Friday, 9.30am to 4.30pm.

If you are in debt, call Way Forward on 1300 045 502. Monday to Friday, 9:00am to 7:00pm. If you’re in financial hardship, they can arrange a debt repayment plan on your behalf. This is a free service.

If you are struggling with your mental health in this hard time — please reach out. Call Beyond Blue on 1300 22 46 36, 24 hours a day. Or use their live chat service, available 24 hours a day.