Small loans vs Medium loans

Australian lenders have been offering a wide range of loans recently. Many have increased their loan amount as well as extended the loan terms.  small personal loans and short term loans are some of the small amount credit contracts (SACCs) that are widely used all over the country. While medium amount credit contracts (MACCs) are also becoming more common today. In this article we will provide you detailed information about each type of loan and how you can know which is better for you.

 

A small amount credit contract is a name used for small personal loan that will allow you to borrow up to $2,000 with repayment terms of between 16 days and one year. They are commonly known as short term loans and regulated by the Australian Securities and Investments Commission (ASIC).

 

On the other hand, medium amount credit contracts often refer to personal loan amount of between $2,001 and $5,000. The loan amount needs to be repaid within 16 days to two years. Though short term loans are popular, larger loan amounts are also becoming much more common. Lenders offering MACCs must have fee structure and interest rates set as per ASIC's regulations.

 

When you apply for SACCs you will be charged establishment fee of up to 20% of the loan amount, a fee of 4% of the loan amount as monthly account-keeping fee and if in case you fail to repay the loan on time you will be charged additional default fees and enforcement expenses. While, the one-time establishment fee for MACCs is $400 and charges maximum annual interest rate of 48% that includes all other fees and charges. The fee caps set by ASIC small loans and medium loans do not apply to Authorised Deposit-taking Institutions (ADIs) that include building societies, credit unions and banks.

 

SACCs and MACCs are generally offered by non-bank lenders. Such lenders usually offer several other specialised loans as well. Most of these lenders are not ADIs and they are therefore restricted by the ASIC caps. Though majority of such lenders focus on SACCs and MACCs, they may also offer larger loans as well.

 

Requirements for responsible lending apply to both SACCs and MACCs. There are other additional responsible lending obligations for the credit providers who offer SACCs. The loan contract shall be assessed as unsuitable if at the time of the loan application the consumer is already in default under another SACC or if the customer has two other SACCs in the 90 day period prior to the loan application, unless the lender can confirm that it was not unsuitable in the circumstances. As a part of the assessment, lender should obtain and review the consumer bank account statements for 90 days prior to the application for the SACC. The loan should not be granted if the repayments on all SACCs exceed 20% of the income of the borrower. It is the responsibility of the SACC lenders to provide potential customers a notice about the fact that small short term loans can be expensive. They should also provide referrals to explore alternative options to meet their cash needs. Depending on how the borrower accesses the service, lender should provide such notice on the premises, over the telephone or online.