Understanding personal loans and the alternatives to high-cost credit
The following information may assist to make better decisions when it comes to borrowing money.
‘Buy now, pay later’ interest-free finance
Interest-free finance, also known as ‘buy now, pay later’, is a type of short-term loan. These loans are popular because they allow people to buy and use goods and services immediately, then pay the bill in instalments.
When you use buy now, pay later, the service pays your bill with the business up-front. You pay the service back, rather than the business where you bought the goods or services.
Consumers can apply for an account. Your application will be considered alongside your credit score, your employment status, income stability and whether you can pay back the loan.
If the item you’ve bought goes on sale later, you are still required to pay the original price you accepted in the agreement.
If you want to cancel your account later, your account balance must be at $0.
Personal loans or credit cards
The interest rate on personal loans is often cheaper than credit cards. The repayment structure can also discipline and encourage you to pay down the loan, rather holding onto debt the way you might with minimum credit card repayments.
When thinking about a loan, make sure you weigh your options, consider your budget and get financial advice if you need it.
Fees and charges
While interest-free loans may not charge interest on your purchases, there may still be fees and charges:
- this could include monthly account fees, dishonour and late fees, processing fees and establishment fees
- you must make a minimum payment each month to pay down your bill
- if you miss a scheduled payment, you will be charged a late fee.
Late fees can vary, so it’s important you know what you are signing up for and the fees you could be charged if you miss a payment. While buy now, pay later arrangements may be interest free, you may still be charged interest if you make repayments using a credit card.
If you are having trouble making repayments, phone the lending service immediately. They can help you manage your payment commitments.
If the matter is complicated and not urgent, you could write an email or letter.
For more information, see help if I can’t pay.
High-cost credit and the alternatives
High-cost credit is a loan offered by fringe lenders. It has high fees and interest rates.
These high-cost loans are promoted as a way of solving your money problems, but they’re more likely to keep you in debt.
Fair Trading strongly advises against using them. Instead, consider the following options:
Credit unions
Credit unions offer loans for as little as $200 with terms starting at 3 months.
They look at your repayment ability and lend to people on welfare benefits.
No Interest Loan Scheme
The No Interest Loan Scheme (NILS) offers interest-free loans to people on low incomes in NSW.
You can borrow up to of up to $2000 for essential items, such as:
- fridges, washing machines, stoves, dryers, freezers and furniture
- some medical and dental services
- education essentials such as computers and textbooks
- car-related expenses.
You can borrow up to $3000 for housing-related expenses such as:
- bond and rent in advance for a new property
- rates
- costs associated with a natural disaster.
To check your eligibility and find your nearest NILS provider, visit the NILS website.
Charities
The Salvation Army can help families with:
- food vouchers/food parcels
- clothing
- furniture and other household items
- accommodation vouchers and housing costs
- electricity, gas, rates and other bills
- public transport fares
- medical and educational expenses
- other forms of help appropriate to you.
To find your local Salvation Army Community Service Centre, call 1300 363 622.
Other charities like The Smith Family, Red Cross, St Vincent de Paul and Barnardos can also help.
Making a complaint
When making a complaint, you should include:
- details of the issues you are experiencing
- copies of any correspondence that shows how you have tried to resolve the matter.
How Fair Trading will handle your complaint
Your complaint will be reviewed to determine the most appropriate resolution. This may include:
- providing you with information to help resolve your complaint
- recording the complaint issues to assist in future compliance programs, or
- contacting the other party to try and resolve the dispute.
You can lodge a complaint:
Online
If you cannot resolve your matter, submit your complaint by using our form.
By mail
Post your complaint form and documentation to:
NSW Fair Trading
PO Box 972
Parramatta NSW 2124
Ask a question
If you are unable to find the information you need, you can call us between 8:30am to 5pm on Monday to Friday. You can also use our form to make an enquiry.