Payday loans and small amount credit contracts

Payday lending in Australia has a legal name, a legal size and a legal price cap. The name is small amount credit contract, or SACC. The size, in the definition that has been stable for years, is a limit of $2,000 or less, a term between sixteen days and one year, provided by someone who is not an authorised deposit-taking institution, not as continuing credit, and not secured. The well-known price cap is a maximum establishment fee of 20 per cent of the amount advanced and a maximum monthly fee of 4 per cent of the amount advanced. This journal will not invent a newer, tidier figure. If Parliament changes the cap, the statute will say so.

Those caps were sold as consumer protection and they are, compared with the uncapped fees that preceded them. They are also why a SACC is an expensive way to borrow a small sum. Twenty per cent to open the contract is not a small arrangement fee. Four per cent a month on the original amount advanced is not the same mathematics as interest on a declining bank balance. People who describe the product as “just $20 a week” are describing the instalment, not the cost.

This is general information. It is not a suggestion to take, avoid, refinance or stay in any particular contract. Credit Made Simple is not a credit licensee.

What the contract actually is

A SACC is regulated under the National Credit Code and the National Consumer Credit Protection Act 2009 (Cth). The provider needs to hold an Australian credit licence or be a credit representative of someone who does. The contract must stick to the permitted fees. Interest in the ordinary bank-loan sense is not the engine; the establishment fee and the monthly fee are the engine.

Moneysmart’s worked figures are the ones to use if you want a picture. On a $2,000 loan, a 20 per cent establishment fee is $400 and a 4 per cent monthly fee is $80 a month. That is not a worst-case rumour. It is the cap, fully used, which is how most of the industry prices. A shorter term does not rebate the establishment fee. A longer term multiplies the monthly fee. If you default, the law also caps what can be recovered — Moneysmart’s current statement is that the maximum you can be charged if you default is double the amount you borrowed. That is a ceiling on a bad situation, not a feature.

Because the monthly fee is calculated on the amount advanced, paying the balance down does not shrink the fee the way paying down a personal loan shrinks interest. That is the structural reason these contracts feel expensive even when the borrower is trying to do the right thing.

Store-branded cash loans, website “short term” loans, and some “wage advance” offers are SACCs if they meet the definition. Some products are designed to sit just outside it — a $2,100 limit, a fourteen-day term, a security clause, a continuing-credit structure. Anti-avoidance rules exist because that design is not new. If the economics look like a payday loan and the contract claims to be something else, treat the claim as a question for a counsellor or a community lawyer, not as a comfort.

Buy now pay later is a different legal story, and from mid-2025 a large part of that industry is inside the credit regime as low-cost credit. It is not a SACC and it does not use the 20-plus-4 cap. See buy now pay later and your credit file. Using BNPL to retire a SACC, or a SACC to retire BNPL, is still a stack of credit. It is not a strategy this page will recommend.

Why the cap still leaves a dear loan

Compare the SACC cap, loosely, with a regulated personal loan. A personal loan quotes an annual percentage rate and a comparison rate on a declining balance. A SACC quotes fees on the amount advanced. That is one reason payday advertising prefers a weekly figure.

A hypothetical, labelled as such. Borrow $1,000 for three months at the maximum cap. The establishment fee is $200. The monthly fees are $40 three times. You have paid $320 to use $1,000 for a quarter of a year, plus the principal, assuming you do not default and are not rolled into a second contract. That is not 4 per cent a year. People used to a home-loan rate hear “4 per cent a month” as a typo. It is not.

The second contract is the quiet multiplier. A SACC repaid by taking out another SACC is how a short, capped product becomes a long problem in economic substance even though each contract is separately capped. Extra responsible-lending rules, limits on lending to people with recent or defaulted SACCs, and protected earnings interrupt that pattern. They do not make the product cheap.

Protected earnings and the rest of the special rules

SACCs carry a thicker rulebook than a standard card. Protected earnings are the part of that book most borrowers actually feel. The idea is that repayments under these contracts cannot consume an unlimited share of income. The precise percentage and the income base have been tightened over the 2010s and 2020s. Moneysmart’s current consumer wording is that a payday-loan repayment must be no more than 10 per cent of after-tax income over the repayment period — no more than $10 of repayment for every $100 you earn. This page will not embroider that with unofficial extra percentages. If a lender’s debit would take more, the problem is the contract, not your budgeting app.

Providers also have enhanced inquiry and disclosure duties. Responsible lending was scaled back for some products in the 2020s and modified for others. SACCs were the category Parliament kept in the tighter column throughout that argument. A SACC licensee still has to assess unsuitability with the extra SACC rules in mind. That is not a warranty. Unsuitable SACCs are still written. It is a reason a complaint file on a payday loan looks different from a complaint file on a low-cost credit contract.

There are restrictions on how these loans are advertised and on door-to-door and certain other selling practices. There are rules about what a default fee can be. There are civil-penalty consequences for exceeding the cap. If you have been charged more than the permitted establishment or monthly fee, that is a matter for IDR, AFCA, a community legal centre or ASIC — not for a second loan to “clear” the first.

Centrelink recipients were, for years, the group the protected-earnings rule was written around. The later reforms pushed the idea toward a broader population. If most of your income is a social security payment, the combination of a SACC debit and a rent debit is the arithmetic a counsellor will want to see on paper, not in a phone app that hides the establishment fee.

Alternatives that are not another SACC

The honest alternatives are unglamorous. A free financial counsellor via the National Debt Helpline on 1800 007 007 will map the bill that feels urgent against the bills that evict you. Utility hardship programs, Testers and Centrepay arrangements, and state emergency relief exist because a $600 electricity bill is a worse candidate for a $600 SACC than the advertisement suggests. Community legal centres deal with the contracts that were never lawful.

If you already have a regulated personal loan or a card, a hardship variation on that contract is usually a cheaper conversation than a new SACC to keep the old facility “up to date.” If you have already missed a SACC repayment, the first fourteen days still matter: contact the provider, do not ignore a default notice, and do not treat a collector’s call as a court order.

Family and friends are sometimes proposed as the moral alternative. They can also become a second creditor with no Code, no AFCA, and a relationship on the line. That is a household decision, not a product recommendation.

What this page will not do is point you at a “better” payday lender, a fintech wage product, or a consolidation loan that uses the SACC as the excuse to take security over a car. If a refinance is ever rational, it is a licensed conversation with a budget attached, and it starts after the counsellor, not after the banner.

Credit files, complaints and the line this journal will not cross

SACCs can appear on a credit report. Enquiries, open accounts, repayment history and, later, defaults are the usual items. A stack of short-term enquiries is visible. So is a default that followed a sixty-day arrears and the prescribed notices. Paying a collection agency does not always tidy the listing the way a borrower hopes; it should update the status. Read the file.

If the provider was unlicensed, exceeded the cap, ignored protected earnings, or skipped the SACC-specific unsuitability rules, the complaint path is the same spine as any other credit dispute: the firm’s internal dispute resolution, then AFCA, with ASIC and the OAIC for the problems that belong to them. Complaints, IDR and AFCA is the process piece. Do not let a collector talk you out of a written complaint because “this is just a payday loan.”

Credit Made Simple will explain the cap, the definition and the cheaper rooms. It will not rank SACC providers. Ranking a particular credit contract is the beginning of credit assistance. We do not hold an Australian credit licence, and we do not pretend that a table of “lowest weekly repayments” is journalism.

If you take one thing from the statute, take this. The 20 per cent plus 4 per cent cap is the limit, not a target you should be grateful for. The product exists because banks are slow and bills are not. The law exists because the market that formed around that gap charged even more. Neither fact obliges you to borrow from it this week. Call 1800 007 007 before you let a monthly fee on the amount advanced become the way you eat.