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Published: June 17, 2026
Understanding different types of credit and debt
This information aims to help frontline workers explain different types of credit and debt to community members. Each type has its own risks and consequences, so understanding what each one is can help community members make safer financial decisions.
Small loans (payday loans)
Small loans, often called payday loans, may be classified as Small Amount Credit Contracts. These are unsecured loans of up to $2,000, with a loan term between 16 days and 12 months.
When providing a Small Amount Credit Contract, creditors can charge a 20% establishment fee plus a 4% monthly account fee. Unlike interest, the monthly account fee does not reduce as the debt is repaid.
Consumers often end up paying very high fees and charges, which can worsen financial hardship or lead to a debt spiral. Responsible lending and disclosure obligations apply when creditors offer Small Amount Credit Contracts.
Jane came to see you after being contacted by a creditor. She tells you she had to borrow money after her washing machine broke down. She’s not sure how much she owes but only made a few payments.
Jane tells you she applied online and spoke with someone from the loan company who asked her a bit about her circumstances. They offered to lend her $1,000 and would give her 12 months to pay it off.
Jane received the money the following day.
Although you would need to see the loan documents to confirm, it is likely this was a small amount credit contract. Under this contract, Jane was charged $200 to establish the loan, and $40 for the monthly account fees. If Jane makes every payment, she will pay at least $680 fees and charges on the $1,000 loan.
If Jane misses any payments, the fees and charges are likely to be much higher.
Medium amount credit contracts (MACCs)
A Medium Amount Credit Contract is a loan of between $2,001 and $5,000, with a loan term of 16 days to 2 years.
When providing a Medium Amount Credit Contract, creditors can charge a 20% establishment fee plus interest up to 48% each year. In practice, many Medium Amount Credit Contracts will have interest rates between 29 – 48% annually.
Medium Amount Credit Contracts can be secured against property the borrow already owns. For example, a lender may ask to secure the loan against a borrower’s car.
Responsible lending and disclosure obligations apply when creditors offer Medium Amount Credit Contracts.
Buy Now Pay Later (BNPL)
Buy Now Pay Later (BNPL) lets community members purchase items immediately and pay in instalments instead of upfront.
Each new purchase adds another set of repayments, which can overlap with existing ones, and multiple small purchases can quickly accumulate, increasing financial pressure and the risk of missed payments.
Usually no interest is charged, but late fees and other charges apply. Common providers include Afterpay, Brighte, Humm, Klarna, Latitude Pay, Plenti, StepPay, and ZipPay.
BNPL in Australia is now regulated under the National Consumer Credit Protection Act, but providers’ obligations under this law are still limited compared with some other types of credit.
Credit cards
A credit card is a form of revolving credit that allows consumers to borrow money up to an approved limit for purchases or cash withdrawals.
Consumers must make at least the minimum monthly repayment, and interest is charged on unpaid balances. High interest rates and ongoing use can lead to growing debt.
Unlike a fixed-term loan, the balance can fluctuate month to month, giving flexibility but also a risk of growing debt if not managed carefully.
Responsible lending and disclosure obligations apply when creditors offer continuing credit.
Consumer leases
A consumer lease is a contract to rent goods such as appliances or electronics for a set period. These types of agreements are sometimes called ‘Rent to Buy’ or Rent to Own’.
Consumers make regular payments but do not own the goods. Under these agreements, a consumer can end up paying significantly more than the value of the goods but never own them.
Consumer leases are regulated under the National Consumer Credit Protection Act. Responsible lending and disclosure obligations apply when creditors offer consumer leases.
When Dave and Angie moved into their new rental, they had no furniture or money to buy furniture.
Unable to borrow money, they found a place online that offered ‘rent to own’ products. They had been making the lease payments for the last couple of years but recently fell behind.
They came to see you when the company threatened to repossess the furniture: a fridge, their daughters’ bunk beds, and other essential items.
It is likely that Dave and Angie entered into a consumer lease.
Car loans
A car loan is a personal loan to buy a vehicle. Repayments plus interest are made over a fixed term (usually 1–7 years). The interest and fees charged on personal loans to buy a car vary significantly but are generally between 16 – 30% annually.
Many companies that provide car loans will secure the loan over the car; which means the lender can repossess the car if payments are missed. There are some protections for borrowers even when a loan is secured.
Unsecured loans have no collateral but can sometimes carry higher interest rates.
Personal loans
A personal loan is money borrowed from a bank, credit union, or lender for personal expenses, such as a vehicle, home improvements, medical costs, or debt consolidation.
The consumer repays the loan over an agreed term in fixed monthly instalments, with interest.
Debt consolidation loans
A debt consolidation loan is a personal loan used to combine multiple debts into a single loan.
The consumer uses the loan to pay off existing debts such as credit cards, payday loans, or other personal loans, and then makes one regular repayment on the consolidation loan. This can simplify repayments but often leads to a longer repayment period and may add further interest.
These loans do not eliminate the debt and quickly become unaffordable if the consumer accumulates other debts during the repayment period.
Telecommunications contracts
Telecommunications contracts cover services such as mobile phones, internet, and electronic devices. To enter a contract, the consumer usually needs to provide ID, personal details, agree to fixed repayment terms, and in some cases submit to a credit assessment.
These contracts can be risky, as consumers may be locked into long agreements with high fees for excess use and early termination, leading to unmanageable bills.
They are regulated under the Telecommunications Act 1997 (Cth) and the Telecommunications Consumer Protections (TCP) Code, but these rules are less effective than responsible lending laws, as providers are not required to properly assess a consumers ability to pay.
Complaints about telecommunications providers can be made to the Telecommunications Industry Ombudsman (TIO).
Utility bills
Utility bills (such as electricity, gas, and water) are not credit contracts, so no credit assessment is required when a consumer sets up an account. However, unpaid bills can quickly accumulate and be referred to debt collectors.
Most energy and water providers must offer financial hardship assistance, and many also have policies to support clients experiencing domestic and family violence.
Consumers may also be eligible for the Home Energy Emergency Assistance Scheme (HEEAS), which provides a one-off payment to help with electricity or gas bills in a crisis.
Complaints or disputes about energy or water providers can be made to the Energy and Water Ombudsman.
