Payday loans are becoming increasingly popular in Australia, with more and more lenders on the market specialising in small, short-term loans. These lenders do differ somewhat in their eligibility requirements and application processes, so here's a quick guide on how to find a lender and how to apply for a payday loan.
Are you struggling financially?
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
⚠️ 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.
The application process:
Step 1: Compare lenders
Finding the right lender is the first important start of the application process. Prospective payday loan applicants should review the loan amount, fees, turnaround time and loan term to ensure that they are applying for a loan that meets their needs.
Step 2: Review the eligibility criteria and required documents
Lenders vary on their application criteria and the information they need when from their customers. Usually, applicants will need to be over the age of 18, be a permanent resident of Australia and receiving a regular income, but lenders will differ on where that income can come from (Centrelink, employment or a combination of the two) and what level of bad credit they will accept, and some lenders may also lend to people on certain visas. For example, some lenders accept discharged bankrupts, but others don't.
Generally, applicants will need to provide the following documents in order to apply for a payday loan. Applicants will need to provide the following:
- Documents to verify their identity such as their driver's licence or passport.
- Their Internet banking details, which lenders use to access a read-only copy of the last 90 days' of their banking history.
- Their employment details, including whether they are employed, how long they have worked at their current place of employment and the nature of that employment (full-time, part-time, etc.)
- Their income and expenses.
- If they receive Centrelink payments they will need to provide details of this and may need to provide Centrelink receipts.
- They will need to indicate whether they have taken out a short-term loan in the last 90 days and whether this loan will be used to pay off another payday loan.
How do lenders use my documents to approve me for a loan?
While applicants will be asked for different information depending on which payday lender they apply with, the information is generally used for similar purposes. Here's how lenders use the following details:
- An applicant's bank statements for the last three months
Lenders will go through the last 90 days' of an applicant's banking history to get a general idea of their financial position, this is also a requirement of ASIC. To help lenders get an applicant's loan to them sooner, most ask for their Internet banking logins in order to obtain a read-only version of their banking history. This is done through a secure, third-party service such as Credit Sense or Yodlee.
Lenders need to be confident that you will be able to manage the repayments, and that you will have money in your account on the day they plan to direct debit repayments. Prospective applicants should always consider prior to submitting an application whether they will be able to afford the loan that they are taking out on their current budget, because although lenders are under an obligation to decide whether or not a person can afford a certain loan, they can be wrong about that decision.
Applicants should also strive to be completely honest on their application about their income, because if their account does not show the income that they say that they are earning, then they will not be approved for the loan. If an applicant earns their income (either part or all) in cash, they will only be approved for a payday loan if they can show evidence that they deposit their earnings regularly into their bank account.
- Information to conduct a credit check
An applicant's personal information helps lenders conduct a credit check. Unless they indicate otherwise (if they are no credit check lenders), all payday lenders will conduct a credit check, but generally still accept bad credit borrowers. However, the level of bad credit they accept differs. For instance, some lenders will accept customers who are a current or discharged bankrupt, while others will not.
- An applicant's Centrelink payment information
Lenders are restricted as to how much they can lend to someone who receives Centrelink payments, and they may have rules to follow that they have set themselves. According to ASIC rules, if the majority of a person's income comes from Centrelink (50% or more) the repayments of the loan they're applying for can't exceed 20% of their income. Any other loan that they are already currently repaying are included in this 20%.
- An applicant's income, pay dates and expenses
A person's income and expenses will be used to determine how much of a loan they can afford, and their pay dates will be used by the lender to set their repayment schedule. This will all be verified using the applicant's bank statements.
Step 3: Approval
Lenders can usually let an applicant know if they've been approved or not in a matter of minutes. This is because most lenders have an electronic system, often known as a loan engine, to assess their applications, rather than a human being. If more information is required in order to approve someone, the lender will get in contact with the applicant to get this information, and the person's application may be delayed.
Step 4: The contract
If someone is approved, they need to agree to the loan contract before they are sent the funds. Many lenders do this by sending their customers an SMS or a copy of a digital contract that they can sign online. Applicants should review the contract carefully, as it will set out their loan terms, repayments amounts and fees for late payments or defaults. If someone has any questions about the contract, they should get in contact with their lender before signing.
Step 5: How long it takes to receive funds
This differs between lenders and will also usually depend on who the applicant banks with. If the lender uses the same bank as the applicant, they can receive their funds within minutes of being sent. Some lenders are able to do this if a customer banks with any of the Big Four.
However, with most, customers will need to apply and be approved by a certain time (usually around 2pm) for the funds to be received on the same day. If an applicant needs their loan today, the earlier they apply, the better chance they have.
Want to compare payday lenders?
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How much does a payday loan cost?
This depends on how much someone applies for:
- Loans up to $2,000. These are referred to as Small Amount Credit Contracts (SACCs) and have a fee cap. Applicants cannot be charged more than a 20% establishment fee and a 4% monthly fee.
- Loans $2,001 - $5,000. Referred to as Medium Amount Credit Contracts (MACCs), these are also restricted by an ASIC fee cap. Customers cannot be charged more than a $400 establishment fee plus an interest rate of 48% p.a. which includes all other fees and charges.
- Loans over $5,000. Lenders offering loans of this amount, excluding Authorised Deposit-taking Institutions (ADIs) are restricted to charging a rate of 48% p.a. which needs to include all fees and charges.
What if I need another payday loan?
Most payday lenders will allow their customers to borrow from them more than once if they prove themselves to be a responsible borrower. Some lenders, such as Nimble, make it easy for people to repeatedly take out loans with them by providing them with "members benefits". These benefits include a member's area that makes it easy to apply and a Nimble debit card through which customers can receive instantaneous loans. Be aware that payday loans are not long-term financial solutions and repeat borrowing of payday loans may end up being financially damaging.
Have more questions?
How much can I borrow?
This depends on the amount a lender offers and what the applicant can afford. If someone is a first-time borrower, they may be restricted to a slightly lower amount than the lender's maximum available.
What can I use the loan for?
Loan customers can use the funds for any worthwhile purpose, which can include car repairs, medical expenses or to help manage bills.
What if I'm not approved?
Any loan rejection will be listed on that person's credit file, meaning the next time they apply for a loan, a lender will be able to see that they have recently applied with another lender. This can be a red flag to some lenders. Keep this in mind when submitting any additional applications.
Do I have to give my Internet banking logins?
Many lenders require this as this is built-in to their application process. However, customers can find lenders that do not require this, allowing them to submit PDFs of their statements, or have a storefront where customers can bring their statements in person.
Payday loans are designed to cover people for expenses that come up before payday. These can include car repairs, large purchases such as furniture or appliances, to pay forgotten bills or for medical emergencies. Prospective applicants should not use these loans to solve longer-term financial problems such as to make repayments on existing debts.