Loan Charge Australia – What To Expect

A personal loan charge is a payment you will make on top of paying back the principal. Moreover, common loan charges include ongoing and upfront fees, as well as interest. Monzi will, in short, explain all of this in plain English.

Monzi is a lender-finding service. Therefore, we do not offer financial advice. Consider, as a result, seeking independent legal, financial, taxation or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

What is a loan charge?

Put simply, a loan charge is a fee or rate you repay on top of the personal loan principal. Ultimately, fees and interest are how lenders are able to keep running and stay profitable.

Different loan products will carry different charges and fees. For example, consumers with sub-par credit history can expect to pay more for loans when compared with other borrowers.

Upfront loan charge

When you apply for a personal loan, you will often be charged an upfront fee. Often known as an establishment fee, this charge is designed to cover the lender for the cost establishing the loan – hence the name.

Keep in mind, Australian financial law limits what lenders can charge as an upfront fee. Specificaly, this maximum amount depends on the value of the loan. For example, a loan of $2,000 or less can charge a maximum establishment fee of 20% of the loan amount.

On the other hand, an establishment fee of $400 is the max lenders can charge on personal loans from $2,001 to $5,000.

Loan charge – interest rates

Interest rates can be defined as the relationship between the amount borrowed and the money repaid in return for the use of that money. Generally, this is expressed as an annual percentage rate (APR).

Again, there is regulation around what interest lenders can charge, depending on the loan amount.

For example, regulation caps loans valued between $2,001 and $5,000 at an annual rate of 48%, including all other fees and charges.

In addition, the type of personal loan you take out will also affect what you’re charged. For example, if you apply for a personal loan with a lacklustre credit score, the lender will often increase the interest rate because of the added risk.

On the other hand, attach an asset like a car or motorbike as security against the loan reduces the risk posed to the lender. After all, they can repossess the asset you use as security if you fail on your loan. Interest rates for secured loans are, as a result, generally lower.

Ongoing fees

Your personal loan may carry with it ongoing weekly or monthly fees. Lenders often refer to this as account keeping fees. Again, the ongoing charges on your loan will be determined by its amount.

For loans under $2,000 specifically, lenders cannot charge more than a 4% monthly fee.

Loan charge – penalty fees

Penalty fees are charged to the borrower for not adhering to the terms of their contract.

You may, for example, be charged a fee for paying your loan out early. This fee is calculated by the lender, taking a number of factors into consideration. Early payout fees are by no means industry-standard; many lenders offering personal loans may let you make early payments free of charge.

In addition, lenders will generally charge you if you miss or cancel a repayment. We also refer to this as a dishonour fee.

Loan charge colourful abacus white background

Comparison rates

Comparison rates are not a charge themselves. Rather, they condense most of the fees and charges plus the interest rate into one figure. Comparison rates, as a result, make it easier to get an idea of the true cost of a loan.

The below table provides a simple example of how comparison rates are calculated:

Home loanInterest rateLoan chargesComparison rate
Personal Loan A20%0.5%20.5%
Personal Loan B20.25%0.1%20.35%

Please be aware that the above table is for demonstrative purposes only. In no way does the table above reflect the typical charges of personal loans.

What to do if you can’t afford your loan

Life always has a way of throwing up the unexpected; one moment you’re meeting all your repayments, and the next, you’re struggling.

If you find yourself struggling with your repayments, get in contact with your lender. You may, in certain situations, be eligible for a hardship adjustment.

All lenders have a hardship department in place to deal with unforeseen circumstances. Get in contact with your lender if you, for example, lose your job or split up with your partner. Lenders may offer a hardship adjustment if your ability to afford your repayments changes.

Remember, you need to provide evidence of hardship. This can include:

  • bank statements showing a reduction in income
  • medical certificates
  • separation certificate from your employer.

Your lender may offer a resutructured loan if your application is approved.

Things to remember about loan charges

As we have mentioned, the charges applied to your loan will depend on the lender you pair with, as well as your personal situation.

Often, lenders apply rates and fees to your loan in relation to the perceived level of risk. For example, lenders will often charge higher fees to consumers with a poor history of paying their loans back in time.

On the flip side, lenders will often charge lower rates to consumers with good credit scores. After all, they have shown they are consistently able to meet the terms of their loan agreement.

Moreover, for loans under $2,000, the maximum a lender can collect is 200% of the principal. Moreover, this figure includes all the potential fees and charges incurred on the loan.

What loan charge can I expect from Monzi?

Monzi is a free-lender finding service. Therefore, we never charge a thing to use our website. If you are offered a loan from a lender, however, you will likely be charged some or all of the above fees.

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Factor In

Costs

Two credit cards
Two credit cards

You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate

Loan amount

$2,001 - $4,600

Terms

13 months

24 months

Costs

48% annual percantage rate

67.41% comparison rate p.a.

Example

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principle Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Interest Rate for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000

Terms

13 months

24 months

Costs

21.24% annual percantage rate

48% comparison rate p.a.

Example

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principle Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Interest Rate for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.