Everyone says payday loans are expensive, but how much will you really pay?
One of the main concerns people have with payday loans is the costs. How much will I be charged? What are the interest rates? What if I can't pay my loan back? Many payday lenders have attempted to be transparent with their fee structures, outlining what you will and might be charged when you decide to take out a loan with them. In this guide, we'll take you through exactly what you need to know.
How much do payday loans cost?
Payday lenders are restricted as to what they can charge. The fee caps, set by ASIC, are as follows:
|Costs||Loans under $2,000||Loans $2,001 - $5,000||Loans over $5,000|
|Interest rates||N/A||48% p.a.||48% p.a.|
||All fees and charges are included in the rate|
Why are payday loan costs like this?
Payday loans are one of the most heavily legislated forms of credit in Australia and have come under numerous reviews and been subject to many reforms. The most comprehensive reform of payday loans was in 2013 when the National Credit Act was amended to ban loans with terms shorter than 16 days. It was at this time that payday loan "interest rates" were restructured as fees, and lenders were directed not to charge more than what is charged in the outline above. There have been iterations to payday loan rules in recent years, for example, ASIC banning direct debit fees, and there is a current review into Small Amount Credit Contracts and consumer leases. You can view details for this on the Treasury website.
As you can see in the table below, the fees and charges associated with each loan do not differ very much.
How to compare lenders if they all cost the same
While payday lenders all operate with similar costs, they still may differ on their fees by charging less than the ASIC cap. There are also other ways you can compare your options:
- Turnaround time. When will you get your loan? Lenders are able to transfer money to you at different times, some within one business day, some within the hour.
- Additional extras. Some lenders offer extra features such as debit cards with their loans that can make the borrowing process easier.
- Ease of repeat borrowing. You might find you're able to easily borrow money again through certain lenders. This is through features such as member's areas on websites and the lender keeping your details on file. You can often borrow more money than you did originally if you made your repayments on time the first time around.
- Late fees and default costs. The costs and fees associated with making late payments, rescheduling your payments and defaulting on your loan are usually capped at 200% of your principal loan amount. However, the rate at which these costs accumulate differ according to who you borrow with.
How much will your payday loan cost you?
If you do repay your loan
As outlined above, lenders have a cap on the amount of fees and rates they're able to charge you. Depending on the amount you borrow, you can use the calculator below to see how much you're going to pay when you take out a payday loan.
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, 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.
If you don't repay your loan
Lenders charge a variety of fees if you do not make your repayment. These fees can be daily and are added onto your loan amount. Make sure you check your loan contract to see what fees may apply and if you think you will have trouble making repayments get in contact with your lender to avoid late penalties.