payday loans melbourne

What are payday loans?

They are called payday loans, small amount loans, cash loans, small loans, short-term loans and more, but the allure of getting cash quickly this way can conceal significant hidden fees and costs that leave a lasting sting on your hip pocket. You can even get a loan even with bad credit.

Sometimes a crisis comes up in life, and you need money quickly. Or sometimes, despite your best efforts, you may fall behind paying living expenses like rent, electricity and food. If you don’t have an emergency fund or regular savings, you might consider asking a friend or family for help or borrowing some money from a credit provider.

Payday lenders often offer up to $2,000 loans, promising fast, convenient, and easy access to cash. But are they a smart choice for Australians financially?

What is a Payday Loan?

A payday loan is a small loan that’s repaid in full, including the service fee, the next time the borrower is paid. You can borrow a small amount based on the amount you’re typically paid in a pay period. We limit the amount to what you can afford to repay, which means there are no worries about borrowing too much.

When you’re strapped for cash, a payday loan (also known as a small-dollar loan or a payday advance) can seem like a quick fix to tide you over to the next payday. These loans can often be organised very quickly, sometimes over the phone or online. However, the downside is high charges, including very high-interest rates. These costs can quickly add up, potentially leaving you worse off financially.

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A payday loan is a loan of up to $2,000 that you have between 16 days and one year to pay back, according to the Australian Securities and Investments Commission (ASIC) ‘s Moneysmart website. Payday loans are also known as small amount credit contracts or SACCs.

Lenders cannot legally charge interest on payday loans. However, there are often very high overall fees attached that aren’t always obvious upfront for borrowers. These fees are capped but can still be very high compared to most other forms of credit. They can include an establishment fee (up to a maximum of 20% of the amount borrowed), a monthly service fee (up to 4% of the amount borrowed every month), default fees and enforcement expenses. Moneysmart warns that if you take out one of these loans, you’ll end up needing to pay back “a lot more than you borrowed”.

Here’s a guide to what you can be asked to pay.

For payday loans of $2,000 or less, you’ll usually have anywhere from 16 days up to 12 months to repay the debt. The credit provider can charge a variety of fees1;

  • A one-off establishment fee of not more than 20% of the loan amount.
  • A monthly account keeping fee of up to 4% of the loan amount.
  • A government fee or charge.

So, if you borrow, say, $2,000 to be repaid over 12 months, you could end up paying back a total of $3,3602.

For payday loans between $2,001 and $5,000, you can be asked to pay a one-off fee of $400 and a maximum annual interest rate of 48%3.

How does a payday loan work?

A payday loan is a loan that is up to $2000.00. They are also known as small amount credit contracts (SACCs). These loans are typically paid back within a year. We offer a range of repayment options, including 3 months, 6 months and 12 months, to provide the most flexibility possible. The longer the repayment option for a payday loan, the smaller each repayment is, making the repayments more affordable for you. Would you please ask our Spotter team about the different payday loan repayment options we have?

How fast could my instant small payday loans be approved?

Typically, we assess a loan within an hour of receiving it during working hours. Once we have all the necessary documents sent to us online, you could get approved within the hour and once approved, and payment is immediate from our side. Depending on your bank, you could receive payment the same day, but typically it takes 24 hours for your bank to process the payment.

Payday loan with bad credit?

We understand that people looking for payday loans often have bad credit. However, we look at each case on its merits, and bad credit will not preclude you from applying with us. In fact, most of the files we look at have some degree of credit impairment. The big red flags we look at defaults on your credit file from other payday lenders indicate that you have a history of not paying back a previous payday loan, which will indicate you cannot afford a payday loan.

When is a Payday Loan Helpful?

Payday loans in Australia can help if you just need to borrow a small amount of money. For example, if you need to have an appliance repaired, you can borrow the money from us to do this. Likewise, if you have a small car repair bill, you can make sure the vehicle is up and running again so you can drive to work and back.

Any higher-than-normal bills can be covered, and you can get the money you need pretty much any time you need a little extra money.

Who uses payday loans?

Research by a national coalition of consumer advocacy groups, Stop the Debt Trap, shows over 4.7 million individual payday loans were issued for around 1.77 million Australian households between April 2016 and July 2019, generating about $550 million in net profit for lenders. Many Australians experiencing financial stress turn to payday loans, with earlier research showing that payday loans are increasingly available on digital platforms. Often, vulnerable women, commonly with sole responsibility for children, are relying on payday loans as emergency cash for household expenses. 

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What are the pros and cons of payday loans?

Overall cost

Payday loans bring high fees – such as an establishment fee (up to a maximum of 20% of the amount borrowed), a monthly service fee (up to 4% of the amount borrowed, every month), default fees and enforcement expenses.

Risk of unmanageable debt

If you borrow money and need to repay it with high fees, charges and penalties payable, you will be more likely to get into unmanageable debt than if you access the money more cheaply. This can become a serious financial problem in the longer term.

Potential damage to your credit score

Suppose you repeatedly shop around for credit and apply to multiple credit providers in a short timeframe or miss any loan repayments. In that case, your credit score might drop, which could stay on your credit history for some time. Having a low or bad credit rating can affect your borrowing capacity in the future. For example, it might affect whether you are approved for a car loan or a home loan, plus the interest rate a lender charges you.

Why are payday loans a poor credit choice?

If you are already in a difficult financial situation, payday loans can make it worse. Stop the Debt Trap’s research suggests around 15% of payday loan borrowers fall into a “debt spiral” within five years. Over this time, Stop the Debt Trap estimates, about an extra 324,000 Australians may progress towards a debt path that might lead to an event like bankruptcy.

What are some alternatives to payday loans?

Australians should seek free, professional help from a financial counsellor instead of taking on debt from a payday loan or an alternative like a personal agreement.

“Consumers who are experiencing difficulties making payments for utilities, telecommunications or loans can contact their service provider for hardship arrangements such as an extension of time for payment,” said Dr Chen.

“Additional help such as utility relief grants or household relief loans may be available, and people who are experiencing family violence and are facing financial difficulties can seek hardship assistance from their credit or utility provider.”

Dr Chen said that if consumers have trouble reaching suitable hardship arrangements with a credit or utility provider, they could consider contacting a financial counsellor to assist with negotiations, which might lead to better outcomes.

“Free debt advice and debt negotiation are available from the National Debt Helpline (NDH),” she said.

The NDH are both free and impartial. A financial counsellor can help if you need to “negotiate a settlement of debts” with existing credit providers, plus join calls with you as an advocate if you need support handling difficult money conversations with credit providers.

Separate from addressing how you manage debt, ASIC’s Moneysmart suggests the No Interest Loans Scheme (NILS) or a Centrelink advance payment may be suitable, cheaper options if you are eligible and need to get money fast.

Can anyone get a payday loan?

Payday lenders tend to be more flexible in their borrowing requirements than major banks. So, if you’re self-employed or have a poor credit rating, you might pass some payday lenders’ borrowing standards. However, you’ll still need to show you can repay the loan, and this will be assessed based on factors such as your income, spending, identity, employment and credit score. If you are under 18, are not an Australian citizen or resident, have unstable or insecure employment, have a history of poor spending habits, have a low income or have a bad credit score, you might be declined access to a payday loan. Speaking to a financial counsellor for advice on getting your debt under control could be helpful, ideally before you consider applying for a payday loan.

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Frequently Asked Questions About Payday Loans 

What is pay any day loan?

Payday loans are short-term cash loans based on the borrower’s personal check held for future deposit or on electronic access to the borrower’s bank account. Lenders hold the checks until the borrower’s next payday when loans and the finance charge must be paid in one lump sum.

Why are payday loans not good ideas?

Payday loans are designed to trap you in a cycle of debt. When an emergency hits and you have poor credit and no savings, it may seem like you have no other choice. But choosing a payday loan negatively affects your credit, any savings you could have had and may even cause you to land you in court.

What is the difference between payday loans and regular loans?

The main difference between a payday loan and a personal loan is the basic terms. A payday loan is an extremely short-term loan usually due within a month, while the term for a personal loan is at least two years. As a result, payday loans are much easier to access than personal loans.

Are payday loans variable or fixed?

Are Payday Loans Fixed or Variable? Payday loans are usually meant to be paid off in one lump-sum payment. Therefore the interest rate typically does not change. Instead, payday loans often charge a fixed flat fee that can be anywhere between $10 and $30 per $100 borrowed.

Is a payday loan secured or unsecured?

Payday loans are considered a form of “unsecured” debt, which means you do not have to give the lender any collateral or put anything up in return, like if you went to a pawn shop.

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