Loans and credit cards
This page has general information about consumer credit debts, including credit cards and home loans, personal loans, payday loans and consumer lease agreements.
Types of loans covered by national credit laws
National credit laws apply to loans taken out for personal, domestic or household purposes from credit providers ('lenders'), such as banks or credit unions. Common types of loans covered by the national credit laws include:
A credit card is a type of unsecured loan from a bank or other credit provider which allows you to borrow money up to a certain limit. Credit cards often have a higher interest rate than any other type of loan. If you have a credit card you are responsible for all the debt on the account, including any purchases made by your additional cardholders.
If you are in default, the credit provider can charge you default interest which can quickly increase the amount of debt you owe. It can also affect your credit report.
For more information, see Loans & Credit in the Financial Rights Legal Centre website.
Home loans (Mortgages)
A home loan is a consumer credit contract where money is lent using property as security for the loan. A mortgage is registered on the Certificate of Title and held by the bank or credit provider ('lender') until the debt is paid in full. If you stop making repayments on the home loan, the lender can take legal action against you to repossess (take) your home to repay the loan.
For more information, go the Financial Rights Legal Centre Mortgage stress factsheet.
Personal loans and car loans
A personal loan can be secured or unsecured. A secured loan is protected by an asset that has some financial value which is called 'collateral'. An example of a secured loan is a car purchased on finance. If you stop making repayments on the loan, the lender can take steps to repossess your car. An unsecured loan is not attached to any asset but you still have a responsibility to pay the debt. The interest rates are usually higher with unsecured loans.
For more information, go to the Financial Rights Legal Centre Repossession factsheet.
Not all types of loans are covered by credit laws, for example, loans for business purposes. For more information, see National Credit Act on the Financial Rights Legal Centre website.
A payday loan is a type of short-term loan with a high interest rate. Payday loans include small amount loans of up to $2,000 that must be repaid between 16 days and one year as well as loans borrowed over longer periods. They are also called Small Amount Credit Contracts (SACC).
For more information, see Payday Lending on the Financial Rights Legal Centre website.
Consumer lease agreements for goods
A consumer lease is where you have hired goods from a business. A lease with an option to buy the goods is considered to be a credit contract. For more information, go to Consumer leases on the Financial Rights Legal Centre website.
Responsible lending requirements
All banks and credit providers ('lenders') are required to lend money responsibly. This means that, before a lender agrees to lend you money, they must make sure you can afford to repay the loan. The lender will check your credit report and ask you to provide copies of your current payslips, bank account statements and other relevant documents.
If the lender does not take reasonable steps to verify your income before they give you a loan or increase your credit limit, they may be in breach of national credit laws.
If you think your loan is unsuitable, you should speak to a financial counsellor or get legal advice. You may also wish to make a complaint to the Australian Financial Complaints Authority.
For more information, go to the AFCA website.
These requirements apply to loans entered into from 1 January 2011. You should get legal advice if you entered into a loan contract before this date.
From 1 January 2019, a bank or other credit provider must decide your application for a credit card or a change to the credit limit based on whether you can pay back the full credit limit within three years. For more information, see Credit cards on ASIC's MoneySmart website.
Co-borrowers and guarantors
Co-borrowers are jointly and individually responsible for the loan. If you sign loan documents with another person, you agree to repay the loan to the lender even if one of you stops paying.
A guarantor is someone (usually a family member) who has agreed to use their own property as additional security for the borrower's loan. If you are a guarantor, you are legally responsible for paying the loan if the borrower cannot repay their loan. For more information, see Going guarantor on the Money Smart website.
If you are guarantor or a co-borrower, you should get legal advice about your situation.
Paying someone else's loan can be considered a gift and may affect your Centrelink payments.
A default notice is a letter from the lender explaining that you have not made repayments to your loan.
If you have received a default notice, don't ignore it! You have 30 days to fix the default before the lender can start a court case to recover the debt from you.
- pay the arrears and your usual repayments in full
- apply to your lender for a hardship variation
- apply to the external dispute resolution (EDR) scheme, the Australian Financial Complaints Authority (AFCA).
If you are having problems paying your loan, you should speak to a free financial counsellor or get legal advice. A financial counsellor can give you independent advice about your financial situation and may help you negotiate with the lender.
For more information on how to deal with a default notice, apply for a hardship variation or to an EDR scheme, see Resolving your dispute with the bank or credit provider.
If you can't afford to pay the arrears, or if you have been served with a statement of claim, see the External Dispute Resolution page in the Local Court - Small Claims topic.
If you ignore a default notice, the lender can start a court case to recover the debt or repossess any goods that are secured by the loan. The lender can also charge reasonable enforcement costs.
Case study – Kaan's home loan
Kaan has a home loan with Bank Z. Last month, Kaan missed a repayment after he was admitted to hospital. Last week he received a default notice from Bank Z. Kaan is unable to work for the next two months due to his illness. He contacted Bank Z and applied for a hardship variation to change the repayments for two months until he returns back to work.