How Do Small Personal Loans Work?

Find out what’s on offer for borrowers who need a fast, shorter-term loan with our guide to small personal loan products.

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Savvy Editorial Team
Savvy's content writing team are professionals with a wide and diverse range of industry experience and topic knowledge. We write across a broad spectrum of finance-related topics to provide our readers with informative resources to help them learn more about a certain area or enable them to decide on which product is best for their needs with careful comparison. Meet the team behind the operation here. Visit our authors page to meet Savvy's expert writing team, committed to delivering informative and engaging content to help you make informed financial decisions.
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, updated on September 12th, 2023       

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Written by 
Savvy Editorial Team
Savvy's content writing team are professionals with a wide and diverse range of industry experience and topic knowledge. We write across a broad spectrum of finance-related topics to provide our readers with informative resources to help them learn more about a certain area or enable them to decide on which product is best for their needs with careful comparison. Meet the team behind the operation here. Visit our authors page to meet Savvy's expert writing team, committed to delivering informative and engaging content to help you make informed financial decisions.
Our authors
, updated on September 12th, 2023       

Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.

If you’re looking to borrow a smaller amount, it’s essential to know what’s on offer. Many lenders provide small personal loans in Australia – but there are various products out there – each with different terms, according to how much you want to access. It’s important to get the right loan for your needs, and it pays to know the differences. If you’ve been wondering how do small personal loans work, you’ve come to the right place.

How long do I get to pay back my small personal loan, and how much can I borrow?

Small personal loans are products that offer access to sums anywhere between $2,050 and $5,000, with the total cost varying depending on how much you borrow. For all loans, you can repay your debt over a period of between 16 days and two years. 

Which Australian lenders offer smaller loans?

Not all Australian lenders offer personal loans below $5,000. Banks and other major financial institutions tend only to provide sums above that threshold. Specialist lenders who offer these loans operate online far more often than not. That makes for a smooth, swift application process. Everything from documentation submission to signing loan agreements gets done digitally. In turn, that leads to faster decisions and more rapid access to funds. When you apply with an online lender, you’ll nominate a bank account, and money will get transferred almost as soon as your loan is approved.

How do the fees work – aren’t the interest rates higher on smaller loans?

Not necessarily. Small loan costs are based on percentages of the initial loan amount. The fees you'll be charged will be an establishment fee, which is capped at $400, and an ongoing monthly fee, which is charged for each month of your term and capped at 48% of your loan amount per year.

For example, if you borrow $3,000 over just three months, you’ll pay a maximum establishment fee of $4,000 plus three maximum monthly fees of $120. That means the most you’ll pay back is a total of $760. The fixed costs of these loans are often favourable to penalties for early repayment of longer-term personal loans. They’re an excellent option when you need to bridge temporary a cash-flow gap.

Personal loans over $5,000 and eligibility

Shopping around successfully for a small personal loan means being mindful about how much you want to borrow. Loan providers make decisions on small loans based on responsible lending legislation. That means you’re assessed by whether you can comfortably afford to pay the loan back – not by what your credit history says about you. When you’re applying for loans between $5,000 and $25,000, lenders also look to your credit history to make eligibility decisions. What that means is there’s an argument for sticking to smaller loans when you’re a new borrower. Building up your credit score for a while will make you more eligible for larger loans later.

Personal loans over $5,000 and comparison rates

Eligibility aside, once you start borrowing above $5,000, percentage-based caps no longer limit the cost of a loan. Most providers don’t charge an establishment fee, but they can impose other costs, such as monthly or annual account fees. It’s essential to assess loans using the comparison rate. In tables, comparison rates are always displayed beside the basic interest rate. They represent the real cost of a loan – because they take the interest rate plus any monthly, annual, or application fees into account.

How long does approval take, and when will I get my money?

Getting approved for a small personal loan can take minutes, and cash transfer is lightning quick too. Whether you talk to one of our friendly advisors or not, dealing with online lenders is quick and convenient. When you make your application, you’ll need to submit ID, proof of residence, payslips and banks statements – but, that can all be done online. Your lender will ask about your employment and marital status, and the forms are simple to complete. In many cases, you’ll get your answer – and sometimes even your cash – on the same day you apply.

One thing worth noting is that it’s a bad idea to shop around by making multiple applications. Every time you apply for a loan, checks on your credit history leave an impression that other lenders can see. Too many applications can make you look like a risky prospect. In that instance, the worst-case scenario is you’ll receive a refusal. Best-case is you’ll get offered a costlier product. If you’re in any doubt about what your best option is, talk to one of our advisors.

What do Australians use small personal loans to buy?

Small personal loans can be used for a wide variety of purposes. If you take out a secured smaller loan – to buy a car, for instance – your lender will need to know precisely what you intend to buy. However, some cash loan products in Australia are unsecured, and you can use them to fund many different types of purchase—holidays, rental bond deposits, car registration or repairs, and to consolidate debt and organise your finances. Many Australians use a single small unsecured personal loan to fund multiple purchases. For instance, you could repair your house, cover a holiday deposit, and pay off a costly credit card.

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Disclaimer:

The information on this website is of general nature and does not take into consideration your objectives, financial situation or needs.

For loans between $2,050 and $5,000, the APR is between 21.24% (minimum) and 48% (maximum) per annum. Comparison rate of 65.4962%. Minimum term is 16 days and maximum term is 24 months. The cost of the loan is a $400 establishment fee and monthly interest charged on the amount borrowed. For example, a loan of $3,000 over 3 months with an APR of 48%, (comparison rate of 65.4962%), will have an establishment fee of $400, monthly repayments of $1,225.20. Total repayments of $3,675.60 and total interest payment of $275.60.

Warning: A comparison rate indicates the true cost of a loan. Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.