Small loans, often called payday loans, are easy to get and fast to arrive, but they are among the most expensive ways to borrow in Australia. For loans up to $2,000, the law doesn’t cap the interest rate. It caps the fees instead: up to 20% of the loan upfront, plus up to 4% every month. For loans from $2,001 to $5,000, a $400 fee plus up to 48% a year is allowed.
In this guide, see exactly what a $500, $1,000, $2,000 or $5,000 loan can cost, what happens if you miss a repayment and which cheaper options to check first. Use the calculator below to work out your own repayments.
Small or medium loan? The rules for your amount
| Small loan (up to $2,000) | Medium loan ($2,001 to $5,000) | |
|---|---|---|
| Upfront fee | Up to 20% of the loan | Up to $400 |
| Ongoing cost | Up to 4% of the loan per month | Up to 48% a year |
| Interest rate | No interest; the fees are the cost | Included in the 48% cap |
| Term | Loans repayable in 15 days or less are banned | Usually up to 2 years |
| If you default | Total charged, including default fees, capped at twice the amount borrowed | Default fees must be reasonable |
The 4% monthly fee is calculated on the original loan amount, not on what you still owe. That is why longer small loans get so expensive: you keep paying 4% of the full amount every month, even as you repay.
The real cost: $500, $1,000, $2,000 and $5,000, worked out
All examples use the maximum fees allowed by law. Some lenders charge less, so always check the contract.
| Loan | Term | Fees or interest | Total repaid | Per month |
|---|---|---|---|---|
| $500 | 3 months | $100 + $60 = $160 | $660 | $220.00 |
| $1,000 | 6 months | $200 + $240 = $440 | $1,440 | $240.00 |
| $1,000 | 12 months | $200 + $480 = $680 | $1,680 | $140.00 |
| $2,000 | 12 months | $400 + $960 = $1,360 | $3,360 | $280.00 |
| $3,000 | 12 months | $400 fee + $835.88 at 48% = $1,235.88 | $4,235.88 | $319.66 + fee |
| $5,000 | 24 months | $400 fee + $2,870.42 at 48% = $3,270.42 | $8,270.42 | $327.93 + fee |
Look at the two $1,000 loans: taking 12 months instead of 6 lowers the monthly payment by $100, but adds $240 in fees. With small loans, a shorter term is almost always cheaper.
The effective annual rate nobody advertises
Small loans are advertised with fees, not an interest rate, which makes them hard to compare with a personal loan or credit card. Converted to an annual rate, the picture changes:
| $1,000 small loan at maximum fees | Equivalent annual rate |
|---|---|
| Over 6 months ($240 a month) | About 138% a year |
| Over 12 months ($140 a month) | About 109% a year |
For comparison, a typical personal loan is in the range of 8% to 25% a year, and most credit cards charge around 20%. Even a high-cost personal loan is usually far cheaper than a small loan for the same amount, if you can qualify. Run the numbers in our personal loan calculator.
Missed a repayment? What can be added, and the 2× cap
If you fall behind on a small loan, the lender can charge default fees and enforcement costs. But the law sets a ceiling: on a small loan, the total you can be charged, including default fees, cannot exceed twice the amount you borrowed.
| You borrowed | Maximum you can be charged in total |
|---|---|
| $500 | $1,000 |
| $1,000 | $2,000 |
| $2,000 | $4,000 |
If you can see you will miss a payment, contact the lender before the due date and ask for a hardship arrangement. They must respond within 21 days. How to ask, with a template, is in financial hardship: how to ask your lender for help. A missed payment can also lead to a default on your credit file for 5 years.
Your money problem → a cheaper option to try first
| What you need the money for | Try this first | Cost |
|---|---|---|
| An energy, phone or water bill | Ask the provider for a payment plan or hardship program | Usually free |
| An essential item or car repair | No Interest Loan, up to $2,000 | $0 |
| Short of cash while on Centrelink | Advance payment, if eligible | $0 |
| An existing loan repayment | Hardship request to that lender | No new debt |
| Several bills and debts at once | Free financial counsellor: 1800 007 007 | Free |
No Interest Loans need no credit check for essential items and are explained in no credit check loans in Australia: what actually exists.
Signs a small loan is making things worse
- You are taking a new small loan to repay another one.
- You have had more than one small loan in the last few months.
- After the repayment, you can’t cover rent, food or bills until your next pay.
- Repayments are taken by direct debit right after payday, leaving your account empty.
- You’re using small loans for everyday costs rather than a one-off emergency.
If any of these sound familiar, call the National Debt Helpline on 1800 007 007. Free financial counsellors can talk to your lenders and help you break the cycle. If you have several debts, also read when debt consolidation actually saves money.
Frequently asked questions
How much does a $1,000 payday loan cost in Australia?
At the maximum fees allowed, $200 upfront plus $40 a month. Over 6 months that is $440 in fees, so you repay $1,440 in total.
Is there an interest rate cap on payday loans?
Loans up to $2,000 don’t charge interest; their fees are capped at 20% upfront plus 4% a month. Loans from $2,001 to $5,000 can charge a $400 fee plus up to 48% a year.
Can I get a payday loan for 2 weeks?
No. Small loans of $2,000 or less that must be repaid in 15 days or less are banned in Australia.
What happens if I can’t repay a small loan?
Default fees can be added, but the total you can be charged is capped at twice the amount borrowed. Contact the lender early to ask for a hardship arrangement, and call 1800 007 007 for free help.
Do small loans affect my credit score?
Applying adds an enquiry to your credit file, and late or missed repayments can be reported. Some lenders view frequent use of small loans as a sign of financial stress.
Conclusion
Small loans are fast but costly: at the maximum fees, a $1,000 loan over 6 months costs $440, the equivalent of about 138% a year. Before you borrow, check the cheaper options, such as a payment plan, a No Interest Loan or a hardship request, and if you do take one, choose the shortest term you can manage. Borrow only what you can afford to repay.
