These payday loans allow you to borrow up to $2,000, $5,000 or $10,000. Repayment terms depend on the lender and the loan amount, but they are generally short. They can range up to a year for smaller loans and two years for larger loans. Payday loans have a flexible eligibility criteria, and some lenders accept applications from bad credit borrowers and Centrelink recipients. These loans, however, are expensive. For loans up to $2,000, you can expect to pay up to 20% in establishment fees and 4% in monthly fees. For loans above $2,000, the rates can be as much as 48% p.a. Given how costly these loans are, you should only apply for them in case of an emergency. They are not a long-term financial solution.
⚠️ Warning about Borrowing
Do you really need a loan today?*
It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.
Check your options before you borrow:
- For information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor
- Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan
- If you are on government benefits, ask if you can receive an advance from Centrelink: Phone: 13 17 94
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.
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Comparison of instant payday loans
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.
How do instant payday loans work?
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.
Features of instant payday loans
- Short repayment period. With a payday loan, customers will usually be required to pay the full amount plus fees within a shorter timeframe, which is usually not beyond one year (but with higher loans, may go as high as two years). Small emergency loans may even have a turn-around time as short as 16 days.
- Fees. Payday loans come with very high fees, so it is important for people to borrow only what they need and repay it quickly. Payday loan customers will be required to pay an establishment fee and monthly account-keeping fees which can quickly add up. If someone misses a repayment, penalties such as arrears and late payment fees usually apply (and there are no caps to these fees).
- Loan amount. The maximum amount customers can get on a cash advance is usually limited to $2,000.
- Application. Payday loans are straightforward to apply for, with lenders offering online applications and fast responses on your loan approval (usually 24 hours). Requirements for a successful application typically include being over 18 years, stable financially, earn a minimum of $300–$500 per week and receive your pay into your bank account. Customers can apply for a small loan even with a bad credit history as long as they can prove that they will be able to repay the loan.
What are the risks of payday loans?
- Unaffordable repayments. Payday loans are an expensive way to borrow money and should only be used as a last resort. Check the size of each repayment and ensure you will be able to pay it on time. Unaffordable repayments can lead to late fees that will only make things worse.
- High rates and fees. Rates and fees on payday loans are high but there are rules in place so be sure to check your lender is not charging you more than ASIC allows. Also, look at what you would be charged if you are late on a payment or if you default on the loan altogether.
- Unreputable lenders. All Australian lenders should be accredited by ASIC. Check for a credit licence on the ASIC Register and ensure that the lender is easily contactable.
- Impact on credit score. Every loan application shows up on credit reports. While lenders might not consider credit history, applying for lots of loans within a short period can have a negative impact on your credit score in the future.
How do credit histories affect a person's ability to access payday loans?
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.
Alternatives to instant payday loans
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:
- Secured personal loans. If you have an asset such as a house or a car, a secured loan can be a good option to consider if you need money. Lenders will use your asset as collateral to secure the loan, and so therefore may consider an applicant with imperfect credit.
- Credit repair. If you are having trouble getting a personal or unsecured loan due to your bad credit, you can initiate a credit repair to rectify any errors in your credit file that could be affecting your credit rating. There are credit repair agencies that you can hire to find your credit listings and sort any issues in there.
- Credit cards. Credit cards are source of financing, as they allow you to get credit from that you can use for purchases. Before getting a credit card, be sure to check the interest rates and fees on the card and to always pay your balance each month so as to keep you debt down.
- Debt consolidation loans. Consolidating all your debt into one manageable payment can make it easier to track repayments and save you money on late charges. This is an option if you have many high interest instalment loans or if you have run up all your credit cards - and it can help you avoid bad credit.
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.
Improving your chances of being approved for other types of loans
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.
- Consider debt consolidation. Consolidating all your loans into one payment makes it easier to make payments on time, which improves your credit rating while saving you money on late payment fees and other penalties. This could also ensure you manage your payments better, ensuring you improve your credit rating by paying your bills on time.
- Pay your bills on time. Lenders usually check for red flags in your credit file, which include late bill and loan payments. To improve your credit rating and get approved for bigger loans, you should try and pay all your bills and credit card balances on time.
- Check your credit report. Checking your credit file can help you improve your rating by rectifying any errors in it i.e. loans incorrectly listed as defaults by lenders. You can order a copy of your credit file personally or have a credit repair company help you with the task of removing any negative marks on your credit file.
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