Alternatives to payday loans

When you’re financially stretched or earning a low income it can be hard to come up with the money to pay for necessities. Issues such as emergency dental work, a fridge to replace one that has broken down or a pre-apprenticeship course to help you find a job may be difficult to pay for without a loan.

Traditional lenders generally will not consider people on a low income or with a poor credit history. If you are in this position, it seems like you're left with little option other than to take out small loans with “payday lenders”, which can be very costly and can strain your budget even further.

Fortunately, there are some alternatives. There are loans available that are designed to help people on low incomes or who can not easily access credit. There are generally no fees and very low interest rates. Many such lenders also help clients develop a financial or savings plan to reduce the need for future borrowing. Here are details of some of the organisations that can help get you back on track:

• StepUP Loan

StepUP Loan is a low-interest option for people on a small income. The program is managed by Good Shepherd Microfinance, and the loans are provided by National Australia Bank (NAB).

• Loan amount. Between $800 and $3,000
• Loan term. Maximum 3 years
• Interest rate. Currently a fixed rate of 5.99% p.a.
• Fees. No monthly fees
• Purpose of the loan. Loans can be used for second-hand cars, medical expenses, vocational education, computers or furniture. They cannot be used for debt consolidation, holidays or bills.

To apply for a loan contact Good Shepherd Microfinance, which will assist with collecting and completing the necessary paperwork. NAB will then assess your application, and if approved, pay the supplier of your chosen goods directly (the money is not paid to you directly).

To be eligible you must:

• have a healthcare or pension card; or
• receive Family Tax Benefit A; and
• have resided in your current premises for more than three months.

• Good Shepherd Microfinance No Interest Loan Scheme

Good Shepherd Microfinance's No Interest Loan Scheme provides small, interest-free loans to help people on a low income. Loans can be used for vocational training, white goods or medical expenses.

• Loan amount. Between $300 and $1,200.
• Loan term. From 12 to 18 months.
• Interest rate. No interest charged.
• Fees. No monthly fees.
• Purpose of the loan. You can use the money to pay for medical expenses, vocational education, computers or furniture. You cannot use it for debt consolidation, bond, rent arrears, holidays or bills.

Loans are provided by over 250 community organisations across Australia. To apply, visit a local provider to complete the paperwork. There is no credit check.

To be eligible you must:

• have a healthcare or pension card
• earn under $45,000 p.a.
• have lived at your current residence for three months
• and have a willingness and capacity to repay the loan.

• Pension Loan Scheme

Centrelink has a Pension Loan Scheme which provides a line of credit to people receiving a part pension. It provides fortnightly payments either for a short time or indefinitely. It will pay up to the amount of the maximum Age Pension rate; that is, it will lend the difference between the amount of pension you receive and the maximum rate. Loans must be secured with a property, so you must inform Centrelink if you sell the property. The loan can be repaid at any time or kept indefinitely.

• Loan amount. Up to maximum Age Pension rate, currently $797.90 per fortnight for singles
• Loan term. Can be indefinite
• Interest rate. 5.25% p.a. calculated and charged fortnightly
• Fees. You are responsible for paying any legal fees that are required to establish the loan. This amount can be added to the loan value.
• Purpose of the loan. The loan acts like a pension and so can be used for day-to-day living costs or other expenses.

Loans are provided by Centrelink and can be applied for online or at an office. You must meet with a Financial Services Information Officer to discuss the loan before it will be approved.

To be eligible you must:

• be of pension age
• own or part-own property in Australia to use as security
• be ineligible for the full rate of the Age Pension, Bereavement Allowance, Carer payment, Disability Support Pension, Widow B Pension, or Wife Pension as per the asset or income test
• and meet Age Pension residence requirements.

• Centrelink Advance Payment

It is possible to receive an advance payment for most Centrelink benefits. Centrelink may give you part of your allowance in a lump sum, which you must later repay. This is useful if you need access to larger sums at fixed periods during the year, rather than receiving a regular income. It can also benefit students who might need lump sums at particular times.

• Loan amount. This depends on the type of Centrelink payment you are receiving but is limited by the amount you are able to repay within six months.
• Loan term. Most payments must to repaid within six months.
• Interest rate. No interest rate is charged on advance payments.
• Fees. There are no fees related to receiving an advance payment.
• Purpose of the loan. You can use the loan for normal living expenses and one-off costs.

You can apply for an advance payment online using the Centrelink app, by phone, by post or at a Centrelink office. You must prove you can repay the money without experiencing financial hardship, so you will require proof of income and details of expenses and liabilities.

To be eligible you must

• Be receiving any of the following:
  • Age Pension
  • Carer Payment
  • Disability Support Pension
  • Farm Household Allowance
  • Newstart Allowance
  • Parenting Payment
  • Widow Allowance
  • Widow B Pension
  • Wife Pension, or
  • Youth Allowance for job seekers

• Be in Australia when requesting the advance payment
• Not owe money to the Australian Government.

• Fairloans

Fairloans is a small lending business that offers a transparent and low-cost product. Loan costs are quoted in dollar values instead of interest rates, so you know exactly how much you are paying right from the start. Loans can be repaid early, in which case the fees will be pro rata for the time you had the loan.

• Loan amount. You can borrow $1,000, $2,000, $3,000 or $4,000
• Loan term. Loans are for one year, but a new loan can be established once the first year is finished.
• Interest rate. Interest is not charged directly but instead there are loan fees:
  • $1,000 = $199.50 establishment fee
  • $2,000 = $299.25 establishment fee
  • $3,000 = $598.00 establishment and annual fee
  • $4,000 = $798.00 establishment and annual fee

• Fees. For direct-debt repayments there is an establishment fee of $2.20 and $0.99 per direct debit.
• Purpose of the loan. You can use the loan for any worthwhile purpose.

To apply, make an application online. If you are eligible you will be asked to submit documentation to further assess your application. Once this has been received, you should have an answer within 48 hours.

To be eligible you must:

• be an Australian citizen or resident
• be over 21 years old
• have a household annual income of less than $80,000 p.a., and
• not have more than two credit defaults of up to $1,000.

• Army Relief Trust Fund

Army Relief Trust Fund provides low-cost loans and hardship payments for serving Army members.

• Loan amount. Between $300 and $5,000
• Loan term. Must be repaid within two years
• Interest rate. 2% p.a. maintenance fee for general loans, no charge for hardship relief loans
• Fees. No service fees
• Purpose of the loan. The trust provides loans for any worthwhile purpose, although it prioritises people with greater need or who are experiencing hardship.

Loans can be applied for online, and approval is at the discretion of the Trust. The serving member’s commanding officer or supervisor will be involved in the decision-making process. Repayments are taken directly from the member’s pay.

To be eligible you must have served in the Australian Army for a minimum of 12 months.

There are multiple low-cost alternatives to payday lenders. Most of them will also help borrowers establish a financial plan so they stay debt-free beyond their loan.

AddUP is one such program by Good Shepherd Microfinance, that matches regular savings up to $500, for people you have successfully paid off a No Interest Loan Scheme or StepUP loan.

Compare each of the options to ensure you are eligible and the loan can be used for what you require.

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