Gen Y increasingly relying on payday loans to get through the holidays

Elizabeth Barry 29 December 2016 NEWS

applying for a loan at christmas

25-34 year-olds are turning to short-term loans for festive finance.

Christmas is over for another year, but it looks like some members of Gen Y will be paying it off for a while.

The number of 25-34-year-olds were searching for payday loans in December 2016 increased on the same time a year ago, while search volumes for people aged 18-24 declined in the same period.

The 25-34 age bracket saw a traffic increase of 16.85% to payday loans pages on finder.com.au compared to last year, while traffic decreased by 20.93% for those aged 18-24.

That shift likely reflects the increasing financial pressures seen by people in their late 20s, who may be juggling an increased level of expenses once they leave home.

Other generations also saw a significant change in demand, with traffic from those aged 45-54 decreasing by 12.69%. Traffic increased for 35-44-year-olds, with 11.96% more people in that age group looking for payday loans compared to last December.

Another factor in the differing rates of interest might be the impact on individual credit scores of bad finance decisions. While those aged 18-24 generally haven't had much chance to default, people over 25 can find late payments, credit enquiries or even the fact they move house regularly damaging their credit score and restricting access to other choices such as credit card advances or personal loans.

Payday loans have long been the subject of controversy globally, but Australia's laws are amongst the strictest. Australia was also ahead of the curve compared to the UK and US when it came to introducing caps and restrictions to make the market less damaging to vulnerable borrowers.

The law currently restricts fees on loans under $2,000 to a 4% monthly fee and a 20% establishment fee.

Most recently, the government released its response to a review into Small Amount Credit Contracts (SACCs) which maintained the existing cap on fees while also changing restrictions on repayment income caps and ineligible borrowers.

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