Payday lenders generally have flexible lending criteria. The reason they are one of the most expensive forms of finance is because they accept applicants that more affordable lenders would reject. This includes people with poor credit histories, people on Centrelink payments or people on low-incomes. But, while it is true that the criteria is more lenient, it's also important to know that approval flexibility differs between lenders.
Being rejected from loans is harmful to a person's credit rating, and people applying for payday loans generally can't afford to have further damage done to their credit scores.
Read through our guide below.
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.
What is the minimum eligibility criteria for payday loans?
Every lender has different eligibility parameters, but generally applicants need to meet the following minimum criteria to be approved:
- Be over the age of 18
- Be an Australian citizen or permanent resident
- Receive a regular income, either through Centrelink benefits or employment
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.
Can I be approved for a payday loan if...
I am unemployed?
Some lenders may approve applicants for a loan if they are unemployed, provided they can demonstrate that they receive a stable income from elsewhere, such as investments or Centrelink benefits.
Every applicant should review the lender's minimum eligibility criteria prior to submitting an application. If they are unsure whether they meet the criteria, they should contact them directly about their situation. If someone has an irregular income, they may have a better chance of approval with an in-store application.
I receive Centrelink benefits?
Most lenders will consider applicants for a loan if they receive Centrelink benefits, but their options will be more limited if this is their sole income source. Some lenders offer loans to people who have Centrelink as their only source of income, but most lenders have a rule that their repayments can't take more than 20% of the money they receive. Alternatively, applicants who receive Centrelink benefits must earn 50% or more of their income from employment.
I have bad credit?
The large majority of lenders will approve applicants for a loan if they have bad credit. However, prospective borrowers will still need to demonstrate a willingness and capacity to manage the loan that they're applying for. If someone is concerned about their credit history, they may want to consider a no credit check loan.
I am bankrupt?
If someone is currently bankrupt, their loan options will be very limited. However, there are still lenders that will consider applicants who have previous, or even current bankruptcies. Applicants who have been previously bankrupt can check the lender's eligibility rules before they apply, and if they're unsure, contact the lender directly.
I already have a payday loan?
Payday loans are expensive forms of credit and taking out multiple loans can lead to debt problems. If you are trying to apply for multiple payday loans, lenders have to take reasonable steps to prove you will be able to repay the loan without substantial hardship under responsible lending guideline.
People who are in this situation may want to reconsider applying. If they are experiencing severe financial hardship, they may qualify for alternative forms of finance.
What applicants should do before applying
- Check the last three months of bank statements. A lender will check these, so prospective applicants might want to take a look too. The lender will be looking for red flags such as people overdrawing on their account and if the pay they receive into their account is inconsistent with what they state on their application. Other exchanges such as gambling transactions can also be an issue.
- Don't apply for too much. Just because a lender allows people to apply for a certain amount, doesn't mean they should. For example, if someone applies simply to see how much they could get, the lender might end up rejecting the application altogether, rather than just approving them for a smaller amount. This is because ASIC requires lenders to only approve loans for people if they can feasibly afford them based on their income.
- Provide as much information as possible. Many applications become delayed when the lender has to chase information. It can also lead to automatic systems not approving people for a loan instantly, simply because they didn't provide everything that was required. Applicants should check everything that the lender needs from they, and make sure they send it.
- Double-check the eligibility criteria. Lenders set minimum eligibility criteria which every applicant needs to meet. If someone doesn't meet one or more of the criteria, they should not apply. It will lead to a rejected application on their credit file and this will make it more difficult for them to get approved for a different loan.
How to compare payday loans
It's important for every prospective applicant to compare payday loan options (and possible alternatives) to find one that meets their needs. Here are the features to consider:
- How much the loan costs. Payday lenders that offer loans under $2,000 cannot charge more than 20% as an establishment fee and more than 4% as a monthly fee. However, there are some lenders who charge less than this, so prospective borrowers should ensure to look at these charges.
- Repayment terms. Loan terms for payday loans are generally around 62 days to one year. The length of the payday loan will directly affect how much the borrower will pay over the course of the loan, because they will be charged a monthly fee (maximum 4% per month). Before applying, it's important for borrower to check the payday loan terms on offer and use a payday loan calculator to determine how much the loan will cost them. finder offers a payday loan calculator that uses the standard 20% + 4% fee structure. Applicants can also usually find a calculator on the lender's site as well.
- Additional fees and charges. Aside from upfront and ongoing fees, the lender is also able to charge enforcement and default charges. People should ensure that they check how much the lender will charge if a repayment is late, are sent a default notice or have to reschedule a payment. If these charges are excessive, they may want to consider a different lender.
- The application process and turnaround time. Prospective applicants should find out how to apply, how quickly approval takes and when they can expect to receive funds. If the borrower needs the funds by a certain time, this may be a deciding factor. Most lenders offer a same-day turnaround service for loans submitted before 2:00 or 3:00 pm. However, some lenders may charge extra for this service, so it's best to check the small print.
How to apply for a payday loan
The application process for a payday loan is usually completed online. After an applicant has confirmed that they meet the minimum eligibility criteria for the payday loan and that they will be able to afford the estimated repayments, they can get the following documents ready to complete an application:
- Two forms of ID (driver's licence, passport or birth certificate)
- Employment or Centrelink payment details
- Information regarding their finances eg income, assets and liabilities
- Specifics about their credit history including defaults and bankruptcies
- The latest three months of their bank statements