Payday Loans

1. What Are Payday Loans

Payday Loans are small loans that are designed to be repaid over a short term period, usually between 16 days to one year, and carry a maximum loan amount of $2,000, although some lenders may give out payday loans of up to $5,000. These loans are called payday loans because the lender aligns the repayment dates with the borrower’s payday, making it easier for the borrower to make repayments.

Payday loans are also called short term loans due to their short loan term. Repayments can be made on your payday, which could be on a weekly, fortnightly, or monthly basis. The Australian government has fixed the maximum charges that lenders can apply on a payday loan under $2,000 in value. Under these rules, payday loans come with a maximum 20% establishment fee and a 4% monthly fee calculated on the loan principal, although some lenders might charge lower rates to make their loans more attractive.

Payday loans are among the most expensive forms of borrowing available in Australia. As payday loans are expensive, you should consider borrowing under a payday loan only in cases of financial emergencies after you have exhausted all other sources of financial help, including family members, relatives, and friends.

2. Features Of A Payday Loan

All payday loans share the following features.

Loan Amount

Under a payday loan, you can borrow anywhere between $150 to $2,000 with most lenders, and some lenders even offer payday loans up to $5,000 in value. Of course, larger loan amounts translate into bigger repayments and a higher interest expense.

Term Of Loan

The repayment term of the loan is set according to the borrower’s affordability and choice. Smaller loan terms result in a lower interest charge compared to longer repayment terms, as interest expense is charged on a periodic basis, usually every month.

Repayment Schedule

Repayments on a payday loan are set according to the borrower’s payday. For example, if you receive your paycheck on a monthly basis, your repayment date would also fall on your payday every month. It’s essential to review the repayment schedule and amount mentioned in the loan agreement before signing it to ensure the loan is affordable considering your income.

Fees Charged

As long as your loan is under $2,000 in value, lenders cannot charge more than 20% establishment fee and 4% monthly fee. Although many lenders charge this maximum rate on payday loans, some lenders do offer loans at a cheaper rate. Make sure you evaluate all your options and pick the cheapest one that adequately fulfills your needs.

Also, it’s important to review any additional fees and charges applied by the lender in contingencies such as late or early repayments. While almost all lenders will charge a late repayment fee, some lenders do allow early repayments without applying any additional charges. Early repayments allow you to reduce your interest expense, so lenders with no additional fees on early repayments are a good choice.

Repute Of The Lender

Before applying for a payday loan, make sure the lender holds a valid credit license and holds a good repute. This can be verified by checking reviews posted by past borrowers online. Also, if a lender is easily reachable over the phone and provides all required information about the loan to prospective borrowers, then this transparency indicates the lender is sufficiently trustworthy.

Disbursement Time

Most payday loan providers recognize that borrowers require funds as soon as possible, hence the loan amount is usually disbursed within a few minutes, although some lenders may take up to one working day to release the funds. Some lenders specify cut-off times every day before which the loan agreement must be accepted by the borrower for the funds to become available in their bank account on the same day. You should choose a lender that is able to process your loan application quickly so you can get the funds when you need them.

3. Choosing The Best Payday Loans

There are a few factors that you must consider while comparing payday lenders in order to choose the best one for your needs. The payday loan you choose should:

  1. Carry a short loan repayment term so you can minimize your loan expense
  2. Not require you to submit any personal assets as collateral against the loan amount
  3. Have a quick, easy, and online application process
  4. Provide fast loan amount disbursement so you can meet all your financial obligations in a timely manner

4. Risk Factors To Avoid In Payday Loans

While payday loans can be a huge blessing in times of severe financial distress, there are a few risk factors you must consider before applying.

  1. Unaffordable Loans
    Some lenders might approve your loan application even if the loan is actually unaffordable for you. You must carefully review the periodic repayment amount and confirm your affordability before agreeing to take the loan.

  2. Expensive Loans
    Payday loans are expensive, with additional fees and charges applicable in case you fail to honour your loan commitments in a timely manner. Choose a lender with no hidden fees.

  3. Untrustworthy Lenders
    Always opt for a company that holds a credit license in Australia and has positive reviews on the internet. A reputable company is more likely to have greater transparency and better customer service than an non-reputable one.

  4. Credit Score Impact
    Failure to honour your loan obligations can adversely impact your credit score, and this can prevent you from getting approved for loans in the future. 

5. Eligibility Criteria

The following eligibility criteria apply to payday loans. Borrowers must:

  1. Be over the age of 18
  2. Be a permanent resident or citizen of Australia with an Australian residential address
  3. Provide proof of sufficient income, more than 50% of which is sourced through means other than Centrelink income or other government benefits. Usually, an income of over $350 per week is considered acceptable.
  4. Have an acceptable credit history, although many payday loan providers do accept applicants with a bad credit history as long as they meet the affordability criteria as set by the lender

6. Examples of Payday Loans

Lender

Maximum Loan Amount

Loan Term

Disbursement Time

Fees

Sunshine Loans

$2,000

9 to 14 weeks

Within 30 minutes, provided certain conditions are met

20% establishment fee and 4% monthly fee

Nimble

$2,000

62 days to three months

Around one hour, provided conditions are met

20% establishment fee and 4% monthly fee

Credit24

$2,000

Six to twelve months

Same day, provided conditions are met

20% establishment fee and 4% monthly fee

Ferratum Money

$1,900

Three to twelve months

Same day, provided conditions are met

20% establishment fee and 4% monthly fee

7. Advantages and Disadvantages

Advantages

  1. Quick cash disbursement
    If lender conditions are met, you might be able to get a payday loan on the same day that you filed the application. This is especially useful in emergencies or when you need liquidity to pay for running expenses.

  2. Small Loan Amount
    As the loan principal holds a small value, each repayment amount would be small as well, making it easier for you to make timely repayments.

  3. Fast Online Loan Application Process
    The entire loan application process usually takes only a few minutes to complete. Also, lenders have an efficient loan review system that can provide you with a decision on the same day.

  4. No Interest Expense Under $2,000
    Although lenders charge a fixed monthly fee of 4% on payday loans, this fee is not necessarily an interest expense. Instead, lenders refer to it as an account maintenance fee that keeps incurring until the entire loan obligation has been repaid. However, if you borrow more than $2,000, then lenders can charge an APR of up to 48%.

Disadvantages

  1. Expensive Borrowing Option
    Payday loans are among the most expensive forms of borrowing, as a fixed amount is charged on the loan principal with a monthly fee that is incurred on the loan principal amount until the loan obligation has been completely discharged.

8. Application Process

To apply for a payday loan, follow these steps.

Step 1 - Gather Required Document

During your payday loan application, the lender will require you to submit the following documents.

  1. An ID, usually a driver’s license or medicare information
  2. Payslips, usually pertaining to the preceding three months
  3. Electronic bank statements
  4. Details pertaining to your internet banking account

Step 2 - Fill Out The Application Form

While most payday lenders operate an online application process, some also offer in-branch application services. Naturally, the online application is more convenient for the borrower, and might also be faster than in-branch applications due to electronic transmission fo information.

You can find the online application process on the lender’s website. Fill out the form with all the required information as accurately as possible. Accuracy is important as any incorrect information could cause delays in the loan process. Once the form is filled, submit it for review.

Step 3 - Application Review

As soon as the lender receives the filled application form, they might ask you to submit additional documentation during the verification process. Once all required documentation and information have been submitted and verified, the lender will make a decision to accept or reject your loan. If accepted, the lender will send you the loan agreement which you must review and, if you agree with the terms contained therein, sign.

Step 4 - Loan Disbursement

After receiving the signed loan agreement, the lender will disburse the loan amount as soon as possible, probably within the same business day.

9. FAQs

  1. Can I apply for a payday loan if I receive Centrelink payments?
    Yes, as long as your Centrelink or government benefits don’t exceed 50% of your overall income, then you can apply for a payday loan. However, some lenders might accept your loan application if most of your income is from Centrelink payments.

  2. Do payday lenders accept borrowers with a bad credit rating?
    Yes, most payday lenders are more concerned about the borrower’s ability to repay the loan by making an affordability assessment. Although the borrower’s credit rating is taken into consideration during the application review process, it rarely has much impact on the outcome of the loan review process.

  3. What is the maximum amount I can borrow through a payday loan?
    While most lenders have a cap of $2,000 on payday loans, some do provide payday loans up to $5,000. However, it’s not necessary that you will be approved for the amount you’ve requested, as the lender will only approve a loan amount that it knows you can comfortably afford. 

  4. Do payday loan providers allow early repayments?
    Yes, many lenders provide borrowers with the option to dispense their loan obligation early. However, some lenders might charge an additional fee if you make early repayments. Make sure you review the lender’s fee structure before proceeding with early repayments to ensure no additional costs would be incurred.

  5. How much time do lenders take to review a payday loan application?
    Normally, it only takes lenders a few minutes to respond with a decision on your application. However, some lenders might ask you for more documentation/information during the review process, effectively delaying the review decision.

  6. How quickly will I receive the payday loan funds?
    It might take as little as 30 minutes or as long as a couple of business days for your lender to disburse the loan amount. However, the banking channel might cause further delays in processing the funds, so it might take a few days before the loan funds reach your account.

  7. Can I take out multiple payday loans at the same time?
    Probably not. Payday loans are designed to meet short-term emergency expenses and should not be used as a long-term solution to financial constraints. According to established regulations, borrowers with existing payday loans might not be allowed to take out another payday loan until the existing one has been completed repaid.

  8. Who can apply for a payday loan?
    Anyone who is earning a regular income in Australia, is a permanent resident or citizen of Australia, has a residential address in Australia, and can prove affordability for the loan, can apply for a payday loan. However, non-salaried individuals might not be eligible to apply for a payday loan with many payday lenders.