Payday loans Australia

How do payday loans work in Australia?

Payday loans, also known as short-term loans, are a loan designed to be repaid quickly – ideally by your next payday. You usually have between 16 days and 1 year to pay it back, although the longer it takes to repay, the more hefty fees you'll pay.

There are strict laws in Australia governing what you can and can't be charged by lenders. For example, in Australia:

• Payday lenders may lend up to a maximum of $2,000.
• They must charge fixed fees (rather than a standard, annual interest rate).
• Fees are regulated by the Australian Securities and Investments Commission (ASIC).

While each lender has their own fee structure, many charge the maximum legal amount, which is a 20% loan establishment fee and a monthly loan fee of 4% of your outstanding loan.

Some lenders may have more affordable options, so it's important to compare payday loans prior to submitting an application.

Alternatives to payday loans

Payday loans are among the most expensive types of credit you can take out.

If you are facing financial difficulties and considering a payday loan, be sure to look into alternatives that may be more affordable in the long run.

Product	Mainly used for	Pros	Cons
Payday loan	Quick access to up to $2,000	Faster than many forms of credit, easier approval for people with low credit scores	Extremely expensive, must be paid off in under 12 months
Buy now pay later	Paying for a purchase in 4 regular instalments instead of all at once	Relatively easy approval process, usually no interest or monthly fees	Most have low credit limits. Can encourage unnecessary spending
Pay advance apps	Accessing a portion of your pay ahead of time	Relatively quick and easy access to money. Generally no credit checks.	You're charged for every withdrawal, regular use can become expensive.
Debt consolidation	A way to merge multiple debts into an easier-to-manage and potentially cheaper loan.	Simplifies managing multiple debts, can result in a lower interest rate	Your rate is often based on your credit score. Only worthwhile if your new debt is cheaper than your existing debts.
No interest loan scheme	Emergency purchases for eligible individuals.	No interest, fees, or charges.	Very specific eligibility criteria as this is a not-for-profit organisation.
Centrelink Advance	Receiving an advance on your next Centrelink payment	No interest or fees.	The amount withdrawn comes from your next payments

Learn more about alternative to payday loans

How to compare Australian payday loans

Finder compares lenders from across Australia to help you find the most suitable option for you. If you are looking at taking out a payday loan, here are the features and fees to keep in mind:

Monthly fee. Payday loans in Australia cannot charge an annual interest rate and instead charge monthly fees. The maximum fee for each month is 4% of what you borrowed. Over 12 months, this adds up to 48%.

Establishment fee. Also known as an administration fee, it is to be paid upfront once you've been approved. Payday loans often have very high establishment fees of 20% of what you borrowed.

Default fee. Also known as a dishonour or late payment fee, this is charged if you miss a payment. This can add up to a significant amount on top of the monthly fees.

Loan term. This is how long you have to repay the loan. Payday loan terms range from 16 days to 1 year. You may be able to repay your loan in full before the agreed date and through this save money on the monthly fees. However, it is important to check if your payday lender charges a fee for early repayment.

Payday loan rates and fees explained

• Transcript

  Hi I'm Elizabeth, personal loans editor at finder.com.au. If you're thinking about applying for a short-term loan one of your main concerns is going to be the cost. We're going to break down those costs so you can decide if these loans will work with your budget.

  Short-term loans are one of the most strictly regulated loans available and because of this lenders are restricted as to how much they can charge. The credit regulator ASIC has made it so that lenders offering loans of less than $2,000 with terms of between 16 days and 1 year can only charge fees and not interest rates. That's right, these loans actually come with no interest. The reason people think that interest is charged on short-term loans is that the fees are expressed as percentages.

  So let's look at these fees. The first fee that you need to consider is the establishment fee. Lenders cannot charge you more than 20% of what you borrow for this fee. The second main fee you need to consider is the monthly fee. Lenders cannot charge you more than 4% for this fee. Remember that these restrictions only apply to loans of less than $2,000 with terms of between 16 days and 1 year. If you're borrowing more, different restrictions will apply.

  Now you know how much you can be charged, let's look at an example. Let's say I take out a loan of $500 with terms of 62 days, which is a pretty standard loan term offered by short-term lenders. In total, I will repay $660. This includes my original loan amount of $500, my establishment fee which equals $100 and 3 monthly fees of $20 each. So now you know how much short-term lenders are able to charge and how to work out how much you will pay when you take out one of these loans. Remember though that not every lender will charge you the maximum allowable fees, so compare your options before you apply. To find out more about short-term loans and how to compare them, head on over to finder.com.au.

What are the risks of payday loans?

• Unaffordable repayments. Payday loans are an expensive way to borrow money. Check the size of each repayment and ensure you will be able to pay on time. If you can't afford the repayments, you will end up paying late fees that will only make your financial situation worse.
• High rates and fees. Interest rates, late payment and default fees on payday loans are high. Make sure your lender is not charging you more than the ASIC allows and check what you would be charged if you are late on a payment or if you can't pay back the loan altogether.
• Be careful who you borrow from. All the companies listed on our tables are accredited by the ASIC. If you are thinking about taking a loan from a company not on our tables, check that it has a credit licence on the ASIC Register and ensure that the lender is easy to contact.
• Impact on credit score. Every loan application shows up on credit reports. While some lenders might not consider credit rating, applying for lots of loans in a short period can have a negative impact on your credit score. Building up a good credit score is important as it will help you to get better deals on financial products in the future.

How to apply for a payday loan

Most Australian payday lenders will let you apply online and you will need to meet the eligibility requirements to be approved. The exact eligibility criteria will depend on the loan and lender, but the application process usually involves the following steps:

Step 1: Compare lenders

While payday loans are all expensive, some lenders are more affordable than others. Comparing lenders helps you find the best deal for your situation. Keep an eye on how expensive the loan is, any fees for early or late payments, and the repayment schedule.

Step 2: Review the eligibility criteria and required documents

Make sure you're eligible for the loan before you apply. Being rejected for too many loans can lower your credit score, which will make future loans more expensive.

• Common eligibility criteria for payday loans

  • Be 18 years of age or older
  • Earn a regular income, usually around $350 a week
  • Be employed, receive an income or government benefits
  • Receive less than half of your income from benefits
  • Get paid frequently into your bank account (not in cash) either daily, weekly or monthly
  • Not be self-employed (some lenders may make an exception)
  • If you have bad credit, you need to prove that your current financial situation is stable and reliable

  It's important to note that meeting the eligibility requirements does not guarantee approval of your loan.

  • • Driver's licence (or proof of ID card)
    • Medicare number
    • 3 recent payslips
    • Your internet banking details
    • Utility bill such as council rates, electricity, gas, mobile phone or internet

Step 3: Get approved and review

Payday lenders can usually let an applicant know if they've been approved or not in a matter of minutes. They manage to do this by automating the process, so delays will only occur if they need to reach out to you for more information or if your application is flagged for manual review.

Once approved, you'll be sent your contract. This should have all the details and costs, so make sure you review it carefully before signing. After you sign, the money will be sent to your bank account.

How much will a payday loan cost?

Lenders who try to charge you more than these fees are breaking the law.

Loans under $2,000

• Establishment fees. 20% of the borrowed amount
• Monthly fees. 4% of the borrowed amount

Fees and interest for loans between $2,001 and $5,000

• Establishment fees. No more than $400.
• Interest. No more than 48% p.a.

Other payday loan fees to watch out for

• Early repaymentRepaying your loan early may come with a fee.
• Late payment.You will be charged a late payment fee if you fail to make a repayment on time and don't inform the lender beforehand.
• Collection. Any loans which are referred to collections or are defaulted on may incur additional fees.

Reasons why your payday loan application could be rejected

Lenders have a range of rules around who they will or will not approve for a loan. Some common reasons loans are rejected include:

Frequently asked questions about payday loans

• Is there such a thing as 100% guaranteed approval?

  There are no payday loans in Australia who offer 100% guaranteed approval. Every lender has eligibility criteria, and while some have more relaxed rules than others, all lenders will reject applications from borrowers they see as too risky.

  You should be very sceptical of anyone offering guaranteed approval.

  If you don't make repayments on time you will be charged a fee. These fees are often flat payments which can add a lot to the total cost of your loan. Any defaults on the loan will also be listed as a negative mark on your credit report and can remain there for as long as seven years. If you already have a loan and you don't think you can make a repayment, contact the lender to discuss what your options are. Reputable lenders will work with you through processes such as payment plans.

• Are payday loans a bad idea?

  Payday loans are an expensive form of credit and you should compare your options as well as research any rates, fees and conditions before applying. While payday loans are heavily regulated by ASIC, it's important to remember that they are costly and you shouldn't apply if there are alternatives available to you. Before you apply, see if you may be eligible and if the other credit types suit your needs. It's also a good idea to calculate costs to see if any of the alternatives are cheaper than a payday loan.

• How quickly will the money be in my account?

  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.

  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.

• Why do payday loans not charge interest in Australia?

  Payday loans have tight restrictions and regulations under government reforms that set limits on how much payday lenders can charge you. Because of this regulation, and because most payday loans have loan terms of less than a year, payday lenders cannot charge you interest the way other lenders do, since other lenders calculate their rates annually. They therefore just charge a percentage of the amount borrowed. They can make references to the effective comparison rates and annual percentage rate (APR), but it's important to remember that payday loan interest rates are based on a shorter loan term than the standard APR calculation of 365 days.

• Can I pay out my payday loan early?

  Many payday lenders allow customers to pay their loan early without any extra fees associated. However, customers will still need to pay the full amount associated with the credit contract. Contact your payday loan credit provider if you need to organise an early payment.

• Are pensioners eligible for a payday loan?

  Some lenders consider a pension as an eligible form of income. However, whether you're approved will depend on your specific situation and finances. See Finder's guide to loans for pensioners to compare loans for pensioners and alternative options.

• Can I take out a payday loan if I receive centrelink?

  Some payday lenders and institutions do consider Centrelink payments as income, so you may be eligible for a loan. Most lenders won't approve someone if government benefits make up more than 50% of their total income. See Finder's guide to getting a loan on Centrelink payments for more information.

  In line with Australian government regulations, you can not renew or roll over your loan. If you want to take out another loan, you'll first have to pay off your current loan and then re-apply (after assessing your current financial situation).

• Should I use a bank overdraft or a payday loan?

  An overdraft account can be a practical solution for repeat borrowing scenarios, especially since you don't have to keep reapplying for a new loan. Although in some situations, an overdraft may not be so useful. If you need more funds than what an overdraft can give, a short-term loan may be another option. Also, not everyone qualifies for an overdraft. With short-term loans, you are able to get access to lump-sum loans that will reach your account within 24 hours.