Prepaid Payday Debit Cards

Payday loans, as a product, are contentious. These loans appear in the media for the wrong reasons as often as they do for the right. While there are problems – vulnerable customers lured into debt traps and sky-high rates and fees - there are some potential positive benefits and innovations in the payday loans space.

Payday lenders have introduced innovative loan applications and experimental software that enables them to have money transferred into borrowers’ accounts before conventional banks would have even started trawling through payslips to kick off the assessment process. Another one of these solutions is a prepaid debit card where borrowers can receive their loans instantaneously.

But is having instant access to borrowed cash, at very high rates and fees, really a good idea?

How does a payday debit card work?

While the functions of these cards differ, most of them work in essentially the same way:

• Customers can receive their card after they apply for a short term loan. Applicants can apply for a payday loan with a lender, and if they're approved, they are either instantly sent a prepaid card or they can elect to have one sent to them.
• Customers can receive repeat loans onto the card. After the lender sends someone their card, that person can receive instant loans through it – "instant" meaning within a few minutes of approval. In this way, the card functions in a similar way to a credit card.
• Customers can spend with the card. Card holders should be able to spend online, in-store and even overseas, although foreign transaction fees may apply.
• How to load funds. Most lenders also let customers load their own funds onto the card to spend online, in store or to withdraw cash from ATMs.
• What the card costs. When someone receives a loan onto the card the applicant will be charged however much the loan costs – if it’s below $2,000 it will be 24% of the principal for a one-month loan. This is higher than a typical credit card cash advance rate - and considerably higher than other forms of finance. Other fees to watch out for include ATM withdrawal fees, load fees and transaction fees.

What are the drawbacks?

Which lenders are offering free payday debit cards?

Nimble

When someone is approved for a Nimble loan, they can let their lender know that they also want a prepaid debit card. They will likely receive their card within 5 to 10 business days.

Here's what customers can and can't do with the Nimble card:

MoneyMe

Customers become eligible for a MoneyMe Express Visa Card when they are approved for a MoneyMe loan. To receive their card they will need to opt-in via the Member Area and verify your ID, be an Australian resident and have their contact details up to date. After someone requests their card, it will be delivered by Australia Post and arrive within 7 to 10 business days.

This is what customers can and cannot do with the MoneyMe card:

Wallet Wizard

Customers are able to get a Wallet Wizard card if they've previously finalised a Wallet Wizard, ClearCash or MoneyStarter loan. Customers might also be eligible if they're a current customer and making on-time repayments. To be approved for a loan, they'll first need to verify their ID, be an Australian resident and they will need to have up-to-date address details to receive a card. Cards are usually delivered within 15 business days.

Here are the features and restrictions to be aware of. Customers can and cannot:

SRG Finance

If customers apply for a Cash Advance from SRG Finance, they are eligible to receive a Prepaid Visa Card. They may also eligible if they have applied for an SRG Finance Short Term Personal Loan and have been approved for $1,000 or less. When someone takes out either of these loans and lets SRG Finance know they want a card, it will be issued to them via Australia Post. The card has several features. Customers can and cannot:

360 Cash Loans

After someone successfully repays their personal loan of between $150 and $4,000 with 360 Cash Loans, they will be issued a Financier Debit Card. This card gives customers access to any subsequent loans they take out and is also attached to a personal bank account.

There isn't as much information provided by 360 Cash Loans for this card, but here are some of the things customers can and can't do:

Cash Converters

Cash Converters offer a prepaid card with partnered Emerchants. The Cash Converters card can be loaded with funds from an approved Cash Converters loan in store on the day the loan is applied for. It can also have further loans loaded onto the card if the cardholder chooses to apply for further finance with Cash Converters. Customers can spend funds from their loan anywhere where eftpos is accepted, but cannot use the card to make online or over the phone purchases. This card cannot be applied for online and is only available to loan applicants who apply in a Cash Converters store.

The following features are available with a Cash Converters card. Customers can and cannot:

Payday debit card comparison

Use the table below to compare fees, charges, load amounts and ATM fees.

How do payday debit cards compare to bank prepaid cards?

Another alternative to prepaid payday cards is bank overdrafts with a debit card attached. These generally have a lower interest rate, usually around 16-20% p.a. rather than the 24% p.a. for a one-month payday loan under $2,000.

There are a few key differences with overdrafts that customers should be aware of. The first is that they are a revolving line of credit, so there is no repayment date. While this can seem flexible and convenient compared to the short repayment terms on payday loans, remember that having no set term can encourage customers to extend their repayments and see them paying more interest.

The interest on overdrafts is charged at an annual rate rather than a monthly rate, as is the case with payday loans, and customers will only be charged interest when they start using the facility. Overdrafts will be attached to a customer's transaction account.

So why not get an overdraft?

Overdrafts are an option for borrowers to consider, although the eligibility criteria aren't as lenient. Banks need to know that their customers will be able to pay the overdraft back so their credit history, income and transaction history will be considered. Customer options will be limited, because if someone has bad credit or are on a lower income, banks will want them to have a history with them they can use to verify them, so customers will need to apply with a bank they already have an account with.

Are payday debit cards the next "bad credit" credit cards?

While they aren’t exactly "credit cards" in the traditional sense, prepaid payday cards are an example of lenders moving forward in the bad credit financial space. Yes, the loans the borrowers receive on these cards are high-cost, but the cost of convenience has always been higher – the same is true of credit card cash advances.

Borrowers will continue to take out payday loans as long as they need money and as long as they have no other option. If they have a more convenient way to receive the money, and a way to continue to use this facility and load their own money onto it, then this could be a stepping stone for the rest of the financial industry to develop more innovative products for these borrowers.