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Payday loans can offer customers a way to get quick access to cash for financial emergencies. People use payday loans for last minute expenses such as getting their car repaired or paying off a forgotten bill, as these loans are designed to cover people when they're caught short before payday. However, payday loans are an expensive way to borrow money so before applying for one it’s important to understand how they work, what fees are involved and what interest rates are charged.
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
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:
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.
Payday loans work by offering applicants a small amount of money, usually between $100 and $2,000, as a loan. These loans are referred to as "payday" loans because the amount and terms are usually set according to a person's income and pay frequency, and are designed to be paid back in line with when they next get paid.
Payday lenders are restricted as to how much they can charge in interest and fees. The cost will also depend on how much someone borrows. Here is a breakdown of the maximum fees and rates payday lenders are able to charge:
Loan amount | Establishment fee | Monthly fee | Interest rate |
---|---|---|---|
Up to $2,000 | 20% of loan amount | 4% of loan amount | N/A |
$2,001 - $5,000 | $400 | N/A | 48% p.a. |
Over $5,000 | N/A | N/A | 48% p.a. |
The above caps don't apply to authorised deposit-taking institutions such as banks, credit unions or building societies.
An "interest rate" depends on how much a loan applicant is borrowing and for how long, as well as factors such as their financial circumstances and their credit rating (however most payday lenders for loans under $2,000 will charge the maximum fees possible to all borrowers). To get an indication of the rate and costs, prospective applicants can use the payday loan calculator below.
Use the slider to select how much you want to borrow and for how long, and you will get an indication of how much you could be charged.
This calculator is designed to provide you with an estimate based on the numbers you enter. Your personal details are not taken into account and all calculations are based off the calculation model. This calculator is not intended to be the sole source of your information when making a decision regarding your loan, and this calculator also does not guarantee your eligibility. The calculator works off the following assumptions: fees do not change for the life of the loan, your lender will charge a 20% establishment fee and a monthly fee that is 4% of your principal loan amount. You may want to seek advice from a financial professional before signing up to a loan.
While these restrictions are in place to attempt to help to keep payday loans manageable, they are still an expensive way to borrow more and should only be used as a last resort. If available, other credit options are likely to be a better option for people who need to borrow money.
Lenders are able to charge the establishment and monthly/annual fees outlined above if someone keeps their loan in good standing. If customers make payments late or default on your loans, lenders may also charge the following:
While lenders are restricted in terms of the fees they can charge, it’s still important to compare options based on the other features offered. Here are some things to look out for when comparing payday loan options:
As with any type of loan, prospective applicants need to consider their own personal financial situation before they decide to take one out. They should think about the amount they're looking to borrow, the loan terms that they may be offered, and whether the repayments will be affordable to them. They should also consider whether a payday loan is the best type of finance for them, or whether they might want to look at credit cards, a line of credit or a secured or unsecured personal loan.
To apply for a payday loan, customers can compare their options using the comparison table on this page. Once they find a lender, they can click ‘Go to Site’ and be directed through to the lender’s online application form. To apply, loan customers will need to be over the age of 18 and be receiving some sort of income directly into their bank account.
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