Personal Finance

Understanding Payday Loans

Payday loans are becoming increasingly popular in Australia and different service providers are popping up all over the country. These short term loans are often presented to the public under various aliases as they have received a bad rep from the media in the past. This is mostly due to the extraordinary fees and high interests rates associated with them. Some of the different terms used include, cash loans, micro-loans, cash advance, bad credit loans, etc…

Whilst there has been a negative perception casted on these types of loans, they are becoming increasingly popular as they fill a void in the lending market. Banks generally have strict lending criteria which make it hard for many Australians to access funds in the traditional manner. In addition, loans from banks historically take a couple of days. Payday loans do have multiple benefits, borrowers just need to be aware of the terms to understand the costs of funds and consenquences of missing or being late on a payment.

In its simplest form, a payday loan is a cash advance against you next pay or source of income.

Benefits of payday loans include:
– The process is generally very quick…as in same day
– Bad credit approval
– Low income earners, Centrelink & Pensioners can qualify
– No security needed (car, home, boat, etc…)
– Offer amounts as low as $100 and as high as $3000 possibly more
– Easy qualification criteria

Generally the qualifying criteria includes: steady employment, be 18 years of age, have an Australian bank account and in some cases good credit.

A few popular payday loan providers include:

Payday Mate
They offer payday loans up to $1500, but are only available to Victoria, Queensland, Northern Territory, Tasmania and SA.

Small Loans Australia.
They are specialty lender that provides small loan assistance without a credit check. Loans are short to medium term and can go up to $5000.

Potential drawbacks of payday loans include:

– Cost of funding. There are generally 2-3 fees associated with these loans, they include a setup fee, a loan amount fee by dollar amount borrowed or charged interest and a default fee if a repayment is missed or late.
– Negative credit marks if you default on the loan

Payday loans definitely have their place and can be a helpful service to those with poor credit or who need cash immediately and are willing to pay the costs of funding. As with anything that concerns finances and contracts, make sure to read the terms and conditions carefully. In addition get the total fees explained up front and in writing to avoid surprises.

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