High-cost loans, and the warnings the regulators attach
ASIC’s responsible lending guide names small amount credit contracts, some continuing credit contracts and consumer leases as products that can involve fairly small amounts of credit at higher cost. The law adds extra requirements for some of them, and Moneysmart’s own advice to someone struggling with bills is to talk to the provider straight away rather than take a payday loan.
General information, not financial advice. The official places to check are Moneysmart’s page on payday loans and ASIC’s Regulatory Guide 209.
AWhy some credit gets extra rules
RG 209 says the Government has recognised that particular types of small loans can harm some consumers, and responded with additional requirements for small amount credit contracts. More broadly, RG 209, in its December 2019 text, lists extra requirements on top of the general obligations for three kinds of product, small amount credit contracts, reverse mortgages and credit cards, to deal with the particular risks each carries.
None of this replaces the general test. Every one of these products is still covered by the rule that a licensee must not enter into or assist with credit that is unsuitable for the consumer. Unsuitable credit sets out that test.
BThree products, and what is said about each
| Product | The caution | Rule or guidance |
|---|---|---|
| Payday loan (small amount credit contract) | Moneysmart says licensed lenders can’t charge interest on payday loans, but can charge a lot in fees. | Moneysmart says the repayments must be no more than 10% of the borrower’s after-tax income over the repayment period. |
| Credit card | The Government found too many Australians carrying credit card debt for long periods while paying high interest. | The assessment must consider whether the consumer could repay the proposed limit within three years. |
| Consumer lease | Over the full term the payments may be high compared with the value of the goods, and the goods do not become the consumer’s. | ASIC’s guidance: where a lessor of household goods takes payments through Centrepay, its duty to make reasonable inquiries is not reduced. |
CPayday loans and the lender’s checks
On its payday loans page, as checked on 8 October 2026, Moneysmart describes a payday loan, also called a small amount loan, as borrowing up to $2,000 with between 16 days and one year to repay. The law caps most payday loan fees, and Moneysmart says a borrower charged more than the maximum should get free legal advice about getting the money back; its fee figures and calculator are on Moneysmart’s payday loans page.
The lender’s checks go further for this product. RG 209, in its December 2019 text, says that for small amount credit contracts the lender needs information about the borrower’s social security payments, to see whether a specific prohibition applies. And Moneysmart reminds borrowers that licensed payday lenders must lend responsibly: no loan if the lender thinks it won’t be repaid or could cause substantial hardship.
DCredit cards and the three-year measure
The credit card rule came from a problem the Government named: people revolving card debt for long stretches at high interest. The law’s answer is that an assessment of whether a card is unsuitable must ask whether the consumer could repay the proposed limit within three years, with a presumption of substantial hardship if they could not. ASIC fixed the three-year period by legislative instrument.
Moneysmart’s cautions are about cost. Fees and interest can be charged on purchases when the balance is not paid in full by the due date, and it put the average credit card interest rate at over 18% as at May 2026. It also notes that some debit cards are dual network cards that can be used as credit cards, and that doing so could mean high interest.
EShort-term credit: a licensee may not suggest it
One kind of credit is off limits to anyone giving credit assistance. Section 124A of the Act says a licensee must not provide credit assistance by suggesting that a consumer apply for a short-term credit contract, or by helping them apply, or by doing either for an increase to the limit of one. The offence carries a criminal penalty of 50 penalty units.
FBuy now pay later since June 2025
From 10 June 2025, the meaning of credit takes in buy now pay later contracts and low cost credit contracts, and anyone engaging in credit activities involving buy now pay later contracts must hold an Australian credit licence with the right authorisations, though ASIC’s transitional arrangements let a provider whose licence application was accepted for lodgement carry on until ASIC decides it. ASIC says an application lodged after 10 June 2025, or not accepted for lodgement by that date, does not get that cover. Providers of low cost credit contracts may elect to comply with modified responsible lending obligations.
For a borrower watching their record, Moneysmart notes that buy now pay later applications also trigger a credit check, and that too many credit applications in a short time can lower a credit score.
GWhat Moneysmart puts first
Moneysmart’s warnings point away from high-cost credit before they point at it. For a bill you are struggling to pay, it says to talk to the provider straight away rather than get a payday loan. For essentials up to $2,000, like a fridge or car repairs, it suggests checking whether a no interest loan is available; it describes those loans as carrying no interest, fees or charges, so only what was borrowed is repaid.
It also cautions about lenders advertising loans for people with bad credit or a low income, because their interest and fees may be high enough to leave a borrower in a worse position. If repayments become hard, Moneysmart says your lender must consider you for hardship assistance when you ask, and Where to get free help sets out who helps at no cost. The longer-term costs of hiring goods are in Consumer leases.