How much does a short term loan actually cost?


Hi I’m Elizabeth, Personal Loans Editor
at finder.com.au. If you’re thinking about applying for a short-term loan one
of your main concerns is going to be the cost. We’re gonna break down those costs
so you can decide if these loans will work with your budget. Short-term loans
are one of the most strictly regulated loans available and because of this
lenders are restricted as to how much they can charge. The credit regulator
ASIC has made it so that lenders offering loans of less than $2,000 with
terms of between 16 days and 1 year can only charge fees and not interest
rates. That’s right, these loans actually come with no
interest. The reason people think that interest is charged on short-term loans
is that the fees are expressed as percentages. So let’s look at these fees.
The first fee that you need to consider is the establishment fee. Lenders cannot
charge you more than 20% of what you borrow for this fee. The second main fee
you need to consider is the monthly fee. Lenders cannot charge you more than 4%
for this fee. Remember that these restrictions only apply to loans of less
than $2,000 with terms of between 16 days and 1 year. If you’re borrowing more,
different restrictions will apply. Now you know how much you can be charged, let’s look at an example. Let’s say I take out a loan of $500 with terms of 62
days, which is a pretty standard loan term offered by short-term lenders. In
total I will repay $660. This includes my original loan amount of $500, my establishment fee which equals $100 and three monthly fees
of $20 each. So now you know how much short-term lenders are able to charge
and how to work out how much you will pay when you take out one of these loans. Remember though that not every lender will charge you the maximum allowable
fees, so compare your options before you apply. To find out more about short term
loans and how to compare them head on over to finder.com.au

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