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 |
|---|---|---|---|
| Fees | N/A | 48% p.a. | N/A |
| Interest |
|
|
|
As you can see in the table below, the fees and charges associated with each loan do not differ very much.
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 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
This is when it gets tricky. Let's say you borrow $1,000 and are unable to pay your loan back according to the repayment terms set out in your loan contract — you'll be charged differently depending on which lender you take out the loan with. Let's play out the scenario with two different payday lenders:
Lender one: Nimble
Nimble clearly sets out their repayment terms, default fees, rescheduling terms and the like on their site. According to these terms, here is a likely scenario of someone being unable to repay their loan with Nimble:
Loan amount and term: $1,000 loan term borrowed for an initial period of 16 days.
Nimble attempts to debit the amount from your bank account on the 16th day but the payment fails. What happens now?
- You will be charged a $35 payment dishonour fee by Nimble as well as a direct debit dishonour fee by your own bank. If you get in touch with Nimble to explain that you may be late with your payment, you can organise to have the repayment rescheduled. This still carries a $35 fee. Essentially, a defaulted or late payment results in you being charged $35 by Nimble.
- If you do call them and organise a rescheduled repayment, they may organise a 'grace period' for you to organise another payment to them. This period is usually a couple of days.
- From the day your payment is due, a $7 daily late fee will begin to accrue. This will be charged to you every day your payment is late.
- If your payment is overdue by 15 days and you don't get in contact with Nimble, they will report it on your credit file as an unpaid debt.
- If you don't contact Nimble to reschedule your repayments, and your loan repayment period extends beyond 60 days, your debt will be passed on to their external collections partner.
What's the most you'll pay on a $1,000 Nimble loan?
Using a hypothetical loan scenario, the most you'll ever pay on a $1,000 Nimble loan is $1,943, or, 194.3% of your principal loan amount.
Lender two: K24
K24 is another lender that is quite transparent with their fees in regards to missed and defaulted payments. Using this information, here is an example scenario of a defaulted borrower with K24:
Loan amount and term: $1,000 loan on an initial loan term of 16 days
On the 16th day, K24 attempts to direct debit a payment from your bank account, but the transaction is declined. What happens now?
- At the stage when your direct debit is dishonoured, you'll be charged a $35 fee by K24. You're also likely to be charged a direct debit dishonour fee by your bank.
- After your direct debit is dishonoured, you'll receive an automatic email explaining when your next rescheduled repayment is.
- Six days after your loan due date K24 will direct debit your account again. If this direct debit fails you'll be charged a $60 fee and will be sent another automated email outlining the third and final repayment date.
- The third repayment date will fall 15 days after your initial loan due date. If K24 attempts to debit your account and the transaction fails on this date you'll be charged a $90 fee.
- If your debt is in default and you are unable to be contacted by K24, or if your default persists 20 days after your due date, your case will be passed to a debt collections agency.
What's the most you'll pay with a K24 loan?
Based on a $1,000 loan that you do not repay, the maximum you'll pay is $1,465, or, 146.5% of the loan.
What does this look like in a dollar amount?
Why did we choose these two lenders?
These two lenders were chosen for a couple of different reasons. Firstly, according to Hitwise data, they are the two biggest players in the online payday market. These lenders also have a very transparent fee structure. We were able to easily find the information about the fees you, the borrower, would be charged if you missed a payment, rescheduled that repayment, or even defaulted on your loan.
