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Payday loans are generally seen as "quick fix" solutions, as some lenders can provide funds instantly. But as the saying goes, things that sound too good to be true, usually are. The instant nature of payday loans, as well as the lenient eligibility criteria, often come with a hefty price tag.
While ASIC caps payday loan fees at a 20% establishment fee and 4% monthly fees, these are still some of the most expensive financial products on the market, with most lenders charging the maximum amount possible, often with additional charges.
To find out more about instant payday loans, consult this guide:
If you're struggling financially and would like to speak to someone for free financial advice, information and assistance you can call the Financial Counsellors hotline on 1800 007 007 (open from 9:30am to 4pm, Monday to Friday). If you are suffering financial problems related to the coronavirus pandemic you may be eligible for additional support. Find out more here: https://www.finder.com.au/coronavirus-financial-help
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It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.
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The Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.
* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.
Bank loan eligibility can be an issue for people with a default listed on their credit report or for people with little or no savings, which leaves them with payday loans from small lenders as their only option during emergencies. Payday loans should ideally only ever really be used in financial emergencies, such as unexpected bills, car repairs or medical expenses, as they are not long-term financial solutions and can worsen debt struggles.
It's important to understand how payday loans work before applying. First of all, it is advisable for applicants to only take up a payday loan if they are in an emergency or ineligible for other types of finance. This is due to their extremely high fees and short repayment terms. For those who are unsure about their situation or are facing financial hardship, there are alternatives to payday loans that they may be eligible for.
The eligibility criteria for a payday loan is more flexible compared to personal loans offered by banks and credit unions. Applicants will usually just need to be over the age of 18, earning a regular income and be able to offer three months of bank history to apply. So if someone has bad credit, a payday loan could be an option. However, lenient eligibility criteria doesn’t guarantee that a bad credit applicant will be accepted or approved.
All payday loans usually have short repayment period, so repayments can take a huge toll on a person's budget as repayments are often high as a result. Payday loans offer customers access to a small amount of money, which is usually less than $2,000, but can go as high as $5,000, or in some cases even $10,000. Although these loans have a much shorter repayment term than other types of loans such as bank loans, they might be useful to those who need money fast or cannot access other types of loans due to bad credit.
Someone's credit history contains all their financial information, and it is used by lenders to determine if they are likely to default on their repayments. Information about a person's credit card applications, late bill payments, late loan repayments and bankruptcy notes are among the things a lender will examine in an applicant's credit file before approving their payday loan application. Having bad credit can deter lenders from lending applicants a loan, especially if that person is seeking financing from bigger lenders, such as banks.
Payday loan providers will ask for bank statements to determine how much someone earns and therefore how much they can lend them responsibly. Lenders use automatic systems to verify a person's bank statements electronically, but some customers may be required to provide further documentation.
Payday loans are an option during emergencies, but they tend to be expensive and can end up becoming unmanageable. The short repayment period on such loans also make them unattractive to many. Here are several alternatives to payday loans:
If you are struggling financially or think you may be experiencing serious financial hardship, there are further alternatives to payday loans that you may be eligible for.
Getting your credit card application approved or getting a home or personal loan requires a good credit rating, so here are several things that you can do to improve your credit and get a better chance of securing loans.
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