“Payday” loans on the rise: what you need to know before signing up!
- More Australians enquiring for short-term loans on finder.com.au/payday-loans
- Providers are making it easier to get access to quick cash
- finder.com.au tips on what to know about “payday” loans
JUNE 24, 2014, SYDNEY - One of Australia’s biggest comparison websites finder.com.au is urging Australians to be aware of the risks when taking out short-term loans, following a rise in demand through the site.
Since www.finder.com.au/payday-loans launched a comparison of 11 short-term loan providers – also known as “payday” loans – in January, enquiries and traffic to the website have more than doubled every month.
Short-term loans are small loans that range between a max amount of $1,000 and $5,000, and are designed to be paid back within one month. These loans are more expensive than other credit facilities such as credit cards and personal loans, with an establishment fee of 20 percent of the principal amount borrowed and 4 percent of the principal amount per month, according to the providers on finder.com.au/payday-loans.
For a $1,000 short-term loan paid off in 30 days for instance, it would cost $240. Other fees can be charged such as late payments ($35-38.50 depending on the provider), some charge a daily default fee of $7, dishonour fee, collection transfer fee, SMS balance enquiry, BPay and card load fees.
Money expert at finder.com.au Michelle Hutchison said she is not surprised by the popularity of short-term loans.
“Short-term loans are one of the fastest ways to secure a loan and they can be much more accessible to those with a bad credit history, which is why they are so popular.
“According to the finder.com.au/payday-loans database, one of the 11 providers will give you a loan by the next business day, seven of the providers offer same-day turnaround time and three offer loans within one hour.
“Some providers will approve loans to people with black marks on their credit file where they have defaulted on loans in the past, while one provider now has no credit check.
“Because these loans are high risk to the provider, they are much more expensive than other types of loans so it’s important to find out all the details and read the fine print before signing up.”
Mrs Hutchison said that while Australians should avoid paying too much for a loan, some people can benefit from them.
“Short-term loans should be avoided as there are ways to seek help for those who are struggling with their expenses before seeking out a short-term loan. However, short-term loans can be a reasonable option as a last resort because of their fast turnaround and low lending criteria.
“Like any type of loan, there are pros and cons that borrowers need to consider before signing up. Short-term loans are more expensive than other types of loans however if you have a bad credit history and want a small loan before your next paycheque, it could be beneficial to use a short-term loan provided you exhausted all other avenues, use the loan responsibly and pay it off in full before the due date.
“Always be aware of the differences in fees, how much it will cost to pay off the loan and look at your options before borrowing.”
finder.com.au/payday-loans tips on what you need to know about short-term loans:
- Seek help before signing up: Before signing up to a short-term loan, consider other options. Loan and service providers have financial hardship provisions in place so if you are struggling to meet loan repayments or pay bills, speak to your provider and negotiate a plan to help you pay back your debts in installments. If you are a low income earner, you could qualify for a no or low interest loan to pay for essentials or talk to Centrelink for an advance payment. For free independent advice from a financial counsellor call 1800 007 007 anywhere in Australia.
- Consider all your options first: Compare your options with other types of credit such as a personal loan or credit card. For instance, many credit cards offer a balance transfer feature where you can consolidate debts to one card with an introductory rate starting from 0 percent for up to 24 months. Remember to check the details and fees.
- Calculate if you can afford repayments and fees: Work out the cost and how you plan on paying back the total loan amount including interest and fees. If you can’t pay back the loan in time then you should avoid short-term loans.
- Compare different short-term loan providers: Fees can vary between providers so it’s important to compare the costs and find out all the fees involved. Use a comparison website like finder.com.au/payday-loans to learn about short-term loans and compare different providers side-by-side.
- Check for a credit licence: Ensure the short-term loan provider is registered with ASIC by finding their Australian credit licence number.
For further information
The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.
finder.com.au is Australia's most visited comparison website and has helped over 4.8 million Australians find better credit cards, home loans, life insurance, shopping deals and more since 2006. finder.com.au compares over 250 credit and debit cards from 31 brands, over 300 home loan products, and information from 13 life insurance providers as well as online shopping promo codes, mobile phone plans, travel insurance and more. One Australian every five minutes is using finder.com.au to find better (Source: Google Analytics).