You need money right now, but pay day isn't for another few days. Wait – you can get a small amount loan, right? Yes, but the fees and interest are horrendous, aren't they? In a way, small amount loans, called payday loans, are one of the worst types of loans you could get yourself into – from an economic standpoint. But, they do have one saving grace. They let you pay your bills when you have a zero dollar balance in your bank account. Here's how to use them without getting yourself into a fix.

What Is A Small Amount Loan?

A small amount loan is a loan up to $2,000 that you must repay between 16 days and 1 year. Lenders who issue these loans are required to display a warning that tells you of your other lending options before you borrow the money.

These loans are fairly easy to get if you actually qualify. You repay the loan via a direct debit from your bank account or a deduction from your pay. Your loan repayments are usually deducted on the day you're paid so you can't "float" these loans forever.

In fact, these loans are so tightly regulated that certain terms and conditions on them have been banned. For example, lenders cannot issue loans of less than $2,000 or require you to repay them in less than 15 days. The only exceptions to these rules are if you are offered a loan by an Authorised Deposit-taking Institution (ADIs) like banks, credit unions, or building societies. Credit cards are also exempt from this ban.

What You Need To Give The Lender

All lenders must ask you for the previous 90 days of statements for the bank account your income is paid into. These statements don't have to be paper statement, but they do have to show that you use the bank as the primary bank for your income deposits. If you have more than one bank account where income is paid, you must provide 90 days of statements for each account.

The law also requires that you verify your financial situation. For example, you must provide payslips or Centrelink statements. You must also provide copies of bills, other credit contracts or statements of accounts, and property rental statements showing you're up to date with your rent. The number of documents your lender requires will depend on ow well your lender knows you, your credit score, and the information contained in your bank statements.

What Are The Fees?

Make sure you get the list of fees the institution will charge you. Companies like Ferratum display their fees very clearly, but not all institutions do. Even though non-bank lenders must disclose your alternatives, banks and credit unions aren't bound by the exact same regulations. Always ask if you're unsure.

What To Do If You Get Into Trouble

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OK, so, you have gotten a loan but you find yourself in a fix. What do you do? First things first. Don't panic. Call your lender or credit provider. The creditor will want to know why you can't make full payments or why you're not making any payments. Be honest with them. If you just lost your job, don't be ashamed to admit it. Most creditors and lenders want to work with you.

Ask about a repayment plan that you can afford. If it looks like you just won't ever be able to repay the loan, ask about a negotiation that they might accept in lieu of full payment – just keep in mind that this will hurt your credit for a while. You can also ask about an extension on the loan to give you an opportunity to catch up on late payments. Whatever you do, don't avoid your creditors' calls. It will only make things worse.

By Jaquie Dymock

Jaquie has extensive experience in finance. Her articles mainly appear on personal finance blogs.

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