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.
⚠️ 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.
You may be eligible to apply for a payday loan even if you're self-employed. You'll need to meet the lender's eligibility criteria and income requirements. You'll also have to provide bank statements to prove you can repay the loan. Payday loans are not a long-term financial solution. You should only apply if there's a financial emergency.
Am I eligible for a payday loan if I'm self-employed?
There are payday lenders who cater to self-employed borrowers, but not all do. Before you apply, you should check their eligibility criteria to see if you fit. You'll need to provide evidence of regular income by providing 90 days' worth of bank statements. Some lenders may have specific annual income requirements, so it's best to check the criteria before applying. You'll basically have to prove that you have the ability to repay the loan.
How does a payday loan work?
A payday loan is a short term loan with small borrowing amounts and short repayment periods. These loans are usually for sums between $100 and $2,000, but there are payday loans up to $5,000 and $10,000 too. They are called payday loans because the repayments are structured around when you receive your pay.
The terms can range from 16 days to 1 year for $2,000, and up to 2 years or more for higher amounts. You may be asked for your online banking login details. This process is standard and helps lenders access a read-only statement. It is an encrypted process and helps the lender process applications faster. This is why some lenders are able to offer payday loans within hours of submitting your application. You can read more about it here.
While payday loans are relatively easy to apply for, they are also expensive. Payday loans come with high fees and charges. You should only apply if there's a financial emergency and you have no other option. Given the cost, this is not a long-term financial solution. It can lead to further debt, so caution is advised.
How much does a payday loan cost?
Payday loans are more expensive than other forms of personal finance. That said, there are restrictions in terms of how much the lender can charge you. These caps are based on how much you borrow. Some lenders may charge less than this, but they cannot charge more.
- For loans less than $2,000:
Repayment terms: 16 days to 1 year
Establishment fee: 20% of the loan amount
Monthly fee: 4% of the loan amount
- For loans between $2,001 and $5,000:
Repayment terms: 16 days to 2 years
Establishment fee: $400
Maximum interest rate: 48% p.a.
- For loans more than $5,000:
Repayment terms: Longer than 2 years
Fees and charges: All charges cannot exceed 48% p.a.
As an example, take a $1,500 payday loan, with a repayment period of 12 months.
For a $1,500 loan, your one-time establishment fee will be $300 ($1,500 x 20% = $300).
Your total monthly fees will be $720 ($1,500 x 4% x 12 = $720).
That will bring your total fees payable to $1,020 ($720 + $300 = $1,020).
You'll be paying a total of $2,520 for what was originally a $1,500 loan ($1,500 + $1,020 = $2,520). In other words, you'll be paying over 60% of the loan amount in fees.
What are the risks of quick loans?
- Disreputable lenders. Check the lender's website and make sure it's a reputable company. You should check if it has a credit licence and is registered with the Australian Securities and Investments Commission (ASIC). The company should also be easy to contact.
- High interest rates and fees. Apart from the costs outlined above, there are also fees for late payments and penalties for defaulting. All fees are regulated by ASIC and it's illegal for lenders to charge more.
- Getting into and accumulating debt. Not only are you getting into debt, but you also run the risk of accumulating debt. If you don't pay your debt, you'll be hit with heavy fines, which may result in compounding more debt. Remember to budget for your loan repayments before you sign. If it doesn't fit comfortably within your budget, you should reconsider.
- Borrowing too much. While payday loans are convenient and easy to apply for, you should not borrow more than you need or when it's not an emergency. If you can wait, or borrow from another source (such as family or a personal loan), you should consider it. If the expense is not an emergency, you shouldn't do it.
- Multiple applications. Every loan application shows up on your credit report. Some payday lenders may not consider your credit history. However, several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future.
- Inflexible loan terms. You should compare loan terms to ensure you are getting one that suits your ability to repay it. Most lenders will ask you to repay the loan on the "next payday". They could deduct the funds directly from your account.
- Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees and payments. Typically, these are unsecured loans. This means that the lender can initiate legal proceedings against you if you do not repay the loan. They can also report the debt to a credit reporting body like Equifax and use the services of a debt collector.
What can I use a payday loan for?
Payday loans should ideally be used to pay for unexpected bills.
- This can include emergency medical expenses or emergency car repairs.
- If you have an urgent utility bill to pay, you should contact your service provider first. They may be able to help you work out a plan to pay bills or fines in instalments.
Given how costly these loans are, you should avoid taking them to pay for the following:
- Everyday necessities. If this is the case, you should consider a longer-term solution for your credit needs.
- Repayments for existing debts. Taking a loan to pay for another loan may make your debt problem worse. You may end up paying more in fees and charges, and get into further debt. Payday loans are not a long-term financial solution.
- Holidays. Given how expensive payday loans are, you shouldn't take one out for non-essential expenses.
- Big-ticket items like cars. There may be other loans, like secured car loans, you can apply for instead. These loans work out to be cheaper than payday loans.
- Other non-essential expenses and purchases that can wait. If it's not an emergency, you shouldn't apply for a payday loan.
How can I compare my payday loan options?
- Borrowing amounts. Each lender has its own maximum and minimum borrowing amounts. Look for a lender that will give you how much you need.
- Cost. Look at how much the lender will charge you in fees and, where applicable, interest. Then calculate your repayments. Only apply if you can absorb the high costs.
- Repayment terms. For loans up to $2,000, terms range from 16 days to 12 months. Find a lender who offers you the terms you need. Keep in mind that the longer the term, the more you'll be paying in fees. Sometimes shorter terms are better, even if repayments are higher, because you won't be paying fees to maintain the loan for a longer period.
- Eligibility. This may seem obvious, but you'll need to filter for lenders who offer loans to self-employed applicants.
- Extra features. Some lenders may allow you to make extra repayments early, without penalty. Others may allow you to pay off your loan early without fees. If that's something you'd like to do, keep an eye out for such features.
- Lender's reputation. Go with a reputed lender who has a good track record. Check out reviews online, but also check if they're registered with ASIC.
How can I apply for a payday loan?
🤔 Work out how much you need to borrow and what you can afford. You can use a personal loans calculator to help you.
🔎 Start comparing lenders. You can use the comparison table on this page. Don't forget to compare interest and comparison rates and find a loan you're eligible for.
✅ Select a lender. If you're using the comparison table, you can click "Go to site" to be directed to the lender's page, or "More info" if you want to read up on the lender.
🖨️ Organise and prepare the required documentation. This can make the application process easier.
📱 Apply. Most lenders have their applications online.