What’s the most you’ll pay with a payday loan?
Everyone says payday loans are expensive, but how much will you really pay?
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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.
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. Find out more here: https://www.finder.com.au/coronavirus-financial-help
⚠️ 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.
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.|
|Fees||$400 establishment fee||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.
- Repeat borrowing. You might find you're able to 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.
What are the risks of payday loans?
- Unaffordable repayments. Payday loans are an expensive way to borrow money and should only be used as a last resort. Check the size of each repayment and ensure you will be able to pay it on time. Unaffordable repayments can lead to late fees that will only make things worse.
- High rates and fees. Rates and fees on payday loans are high but there are rules in place so be sure to check your lender is not charging you more than ASIC allows. Also, look at what you would be charged if you are late on a payment or if you default on the loan altogether.
- Unreputable lenders. All Australian lenders should be accredited by ASIC. Check for a credit licence on the ASIC Register and ensure that the lender is easily contactable.
- Impact on credit score. Every loan application shows up on credit reports. While lenders might not consider credit history, applying for lots of loans within a short period can have a negative impact on your credit score in the future.
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