Short Term Loans
What is a payday loan and how to get one in Australia?
Unexpected expenses can sometimes throw off our finances. That’s where lending options like payday loans can help make your life easier. But what is a payday loan and is it the right choice for you? Read on to understand everything you should know about this short-term loan.
What are payday loans?
Payday loans, also known as small-amount or short-term loans, can provide you quick access to funds for your urgent financial needs. In Australia, you can borrow a payday loan of up to $2,000 with a repayment period between 16 days and a year.¹ These often come with high-interest rates and are generally repaid on the next payday.
Now that we know what are payday loans, the next pertinent question can be what is a payday lender? A payday lender offers instant cash to the borrower for a short duration for high establishment fees and additional monthly fees.²
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What is an example of a payday loan?
An example of a payday loan can be a situation where you need to cover an urgent and unexpected plumbing bill of $500. If you apply for a payday loan and the lender charges you $15 for every $100 they give you, you will end up paying back a total sum of $575 against your loan.
Although payday loan may seem like the best available option in certain situations, you should always do your research and consider alternate options before making any decisions.
How do payday loans work in Australia?
Payday loans are debts you can get when you’re in urgent need of money before your next payday. Payday lenders typically ask for proof of your income, often in the form of your recent pay stubs. Based on this, they’ll lend you a portion of your monthly earnings.
Payday loans may be a good idea in some situations but not in others. In case you have a sudden medical emergency or have to pay for car repairs, it can be a plausible solution, if that’s the best available option. But if you’re planning to use it for regular bills or leisure spending, you may want to reconsider.
Most lenders don’t check your credit score before giving these loans, so it’s largely your responsibility to check your payment capabilities before taking out a payday loan.³ You should also do your research to find a suitable lender with reasonable rates and have a responsible repayment plan for your loan.
Consider your budget to decide how much you can afford to repay regularly based on your debt-to-income ratio. Try and stick to the schedule. Prioritise paying off your payday loan to avoid extra fees and consolidate your debts for easier repayment and financial stability.
Are payday loans secured or unsecured?
In Australia, payday loans are usually unsecured loans, so they don’t require any collateral. Instead, lenders mainly look at your income and ability to repay. This makes them more accessible but it can also cause you to get stuck in debt cycles.
Payday lenders are required to follow responsible lending practices. The Australian Securities & Investments Commission has banned loans less than $2000 with repayment terms under 15 days for most lenders. For loans of $2000 or less, repayable between 16 days and 1 year, fees are capped. These fees include a one-time setup fee, a monthly fee, government charges, default fees, and enforcement costs.⁴
How long do payday loans stay on your credit file?
Your credit report contains all the payments you made against your loan in the last 2 years. It’ll also show any amount over $150 that was overdue for more than 60 days in the last 5 years even after you’ve made the payment. Your application for the payday loan will stay on your report for 5 years.⁵ After the entire payday loan is repaid, it’ll remain on your record for 2 more years.⁶
What is the average payday loan interest rate in Australia?
The total cost of taking out a payday loan varies a lot depending on the lender, the amount borrowed, and the repayment terms. Licensed lenders, however, aren’t allowed to charge interest on payday loans. They increase the overall cost by charging fees on the loans.
Many payday lenders in Australia charge establishment fees of 20% of the amount borrowed and monthly fees of 4% of the amount borrowed. For example, for a $1,000 loan, you may pay $200 as an establishment fee and $40 as the monthly fee.
If you need a small loan, you can apply for an interest-free small loan with Credit24 here.
How to get a payday loan and what does it require?
Many lenders in Australia provide payday loans to borrowers. To get your application approved and get the funds, you may have to fulfill a few requirements for a payday loan:
- Age: Applicants must be at least 18 years old.
- Income: Proof of regular income is required and Centrelink support can’t be greater than 50% of the total income.
- Bank statements: Lenders typically need read-only access to at least 90 days of bank statements to assess income and expenses.
- Liabilities: Details of any outstanding loans or credit card repayments must be provided.
Get a payday loan with Credit24: flexible and no surprises
If you need a small loan, Credit24 serves as an accessible and affordable option. With our easy online process, you can receive quick approvals and see the money in your bank within a day. Using our loan calculator, you can check the repayment details upfront, there are no hidden costs.
You can apply to borrow between $500 and $10,000, repay over 36 months, and choose weekly, fortnightly, or monthly payment plans with no early repayment penalties. Funds can be transferred within 60 seconds of loan approval.
To apply for a loan with Credit24, you must:
be over 18 years old
be an Australian Citizen or Permanent Resident
have a consistent monthly income of at least $600
have a reasonable credit history.
To complete the online application, we need your mobile number, email address, driver’s license details, and in some cases, Medicare Card or passport number. We’ll also require your bank statements for the last three months obtained through Illion’s secure portal.
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How much would a $500 payday loan cost?
A $500 payday loan can cost you a lot depending on factors like the lender’s fees, repayment terms, and any additional fees they charge. To avoid any confusion, you can easily calculate the cost of an unsecured loan with Credit24 before applying for the loan. Our loan calculator lets you see repayment details without any hidden fees, ensuring transparency.
How long does my account have to be open to get a payday loan?
To get a payday loan, lenders will usually ask for the last 3 month’s bank statements. Credit24 unsecured loan application also requires you to fulfill this criteria. Therefore, your account must be open for at least 3 months.
How many payday loans can you have in Australia?
It depends on the payday lender you choose. Remember that these loans can be expensive, so it’s not always a good idea to take out multiple payday loans at once. But if you do decide to get them, make sure you have the budget and a responsible repayment plan in place to pay off your debts.
So, if you’re wondering how to get a payday loan when you already have one, it might not be easy because most responsible lenders only allow borrowers to have one debt at a time.
How to consolidate payday loans?
If you’re having trouble repaying your payday loans, you should avoid getting new a payday loan to pay them off. Instead, consider consolidating them. This involves combining multiple payday loans (and/or other types of loans) into a single loan.
To consolidate your loans, you can merge your debts into one personal loan that is available at a relatively lower interest rate. You can apply for a quick and easy personal loan with Credit24. Once approved, you can receive a lump sum to settle your payday debts. This will simplify your repayment process.
Sources:
- MoneySmart: Payday loans
- Tippla: Understanding Payday Loans in Australia
- Parliament of Australia: Payday loans and consumer leases
- Australian Securities & Investments Commission: Loans and credit cards
- MoneySmart: Credit Repair
- Australian Government – Office of the Australian Information Commissioner: What stays on Credit report
