Payday loans have helped some consumers meet short term financial obligations while waiting on a paycheck or funding from some other source. Unfortunately, these loans have also caused some who have used them irresponsibly to get into a financial hole that was extremely difficult to correct. Below are some tips to help you make sure that you take advantage of Australia payday lending options as they were intended and to save you from the potential pitfalls of this type of loan.
Use Payday Loans Responsibly
This is obvious, but many people get themselves into financial trouble by using payday loans irresponsibly. Keep in mind that these loans should only be used for short term emergency situations. They are NOT intended to solve or assist with longer term financial problems.
Some good examples of when to use a payday loan include unexpected car trouble or a bill that comes due a few days before your payday. In these cases, use the payday loan to cover the unexpected expense or pay the bill on time and then pay the loan back on your normal pay day.
Shop Around
The interest rates for Australia payday lending can range from 26% all the way to an astonishing 1300% APR. With such a wide discrepancy in the interest rates being charged, it is vitally important that you shop around for the best rate before taking out a payday loan.
Rates differ between companies, but they can also differ based on location. Some locations have stricter laws regarding how much interest a lender can charge for a payday loan. Shopping around for the best rate can save you hundreds of dollars on your loan.
Do Your Homework (Explore Other Options)
Because the process of applying for and being granted a payday loan is so quick and easy, many people tend to gravitate towards this option first rather than as a last resort. Instead, it is best to use a payday loan only when all other options have been exhausted.
Payday loans, both in Australia and in other parts of the world, tend to have the highest interest rates of any type of loan. That makes them the worst option rather than the one that you should turn to first. Below are a few other options you should try before seeking a payday loan.
- Overdraft line of credit from your bank
- Personal loan from your bank
- Personal loan from a friend
- Salary advance from your employer
- Cash advance from a credit card
Of course, in many cases, none of the above will be an option. It is then that a payday loan may come in handy. Just make sure it really is your only options before committing to the much higher interest rate of a payday loan.
Payback the Loan Early
Some borrowers do not realize that they can save a considerable amount of money by simply paying back their payday loans early. Remember that the very high annual interest is concentrated into the short term of the payday loan. For example, you might pay $150 in interest for a two week loan on $400 dollars. If you pay the loan back in one week, however, you will only pay $75 in interest. It is easy to see how the savings can be significant.
Of course, this goes hand in hand with using the loans responsibly. While it is always tempting to hold on to the money for as long as possible, in the case of payday loans, this is very unwise. The amount of money that can be saved, even by paying off the loan just a few days in advance, should be taken into consideration.
Not everyone will be able to pay off their payday loan early, but if you can, it is definitely worth it.
Payday loans are vilified by some as an enemy of low income people. While, as you read above, many do fall into financial trouble using them, it is really all in HOW each person chooses to use payday loans.
For short term emergency situations, Australia payday lending options are the only choice for some people. As long as you do not continue to roll over the loans, and pay them off as soon as possible, you should be able to use this tool without getting into further financial trouble.
Related Links:
Many consumers turn to Australia payday lending when they find that they are short on cash between paydays or have an unexpected emergency wherein they need cash fast. Some people have questions regarding these loans and this article seeks to address three of the most common.
Is it Easy to Qualify for and Close on a Payday Loan?
One reason that payday loans are so popular is that it is very easy to apply and qualify for the loan. There are no credit checks involved and, therefore, no denials due to credit unworthiness. There is an application process that involves verifying employment, contact and bank account information.
The amount of the loan that you will qualify for depends on your income, your pay cycle and if you have had payday loans in the past. Usually, the first time you get a payday loan, the amount will be a bit less than what you will qualify for if applying for further loans.
As for closing on the loan, it is usually just a matter of signing the agreement and either being handed a check or having the money deposited directly into your bank account. Part of the agreement that you will sign when agreeing to a payday loan involves how the loan is to be paid back.
Most commonly, this will include allowing the lender to debit the agreed upon payment – or payments -directly from your bank account. The loan may be paid back in either one or two installments and no additional payday loans can be taken until the first loan is paid off.
How Much Will I Pay for a Payday Loan?
The fees and interest rates for payday loans in Australia vary widely based on the chosen lender and the area in which the lender is located. The interest rate can vary from 26% to 1300% APR. There are also additional fees that may be imposed including processing fees, application fees, direct debit and deposit fees and others.
The total cost for this type of loan is usually quite high and even when a lender charges a lower interest rate, the amount charged in fees will make these one of the most expensive loan options.
The average amount of Australian payday loans is $250. The amount you would have to pay back on a loan of this amount will average around $365 over the period of one month. This is much more than you would pay by using other short term options, such as a line of credit attached to your checking account.
What are the Downsides of Such Loans?
Payday loan detractors think that any possible good of having such loans available is far outweighed by the bad. One of their major concerns, the very high interest rates, was discussed above. Consumer groups lobby for stricter laws about the interest rates that payday lenders can charge.
Some also say that payday lenders target low-income neighborhoods and that the most financially vulnerable become, in essence, victims of these lenders. There is truth in that most consumers who use this type of loans are either low-income or have credit issues.
The main reason for this is that other consumers have access to other types of loans to deal with their financial emergencies.
Another common complaint is that what ideally would be a one-time loan turns into a never ending cycle of renewing the loan and creates a situation that makes it very difficult for low-income borrowers to ever truly pay the loan off. The United States has enacted federal laws that only allow a certain number of payday loans per year, and some are hoping for similar regulations to be put in place in Australia.
Payday loans in Australia have helped some consumers who had nowhere else to turn. As with many types of credit options, the key is in using payday loans wisely. Fully understanding how they work, knowing the exact amount that you will have to pay for the loan and paying it off on time, if not early, will allow you to use the product without becoming bound by it.
Related Links:
Payday lending in Australia is quite popular, but it faces the same type of scrutiny as similar practices do in other countries. Despite the controversy, this is an industry that continues to grow with new names jumping into the payday lending business each week. This article provides some general information about payday loans in Australia and discusses some of the controversy surrounding such loans.
All Australia payday lending activities are regulated by the Consumer Credit Code. While these regulations are intended to provide some measure of protection to borrowers, the interest rates and fees are still quite high.
The exact percentage that a consumer would pay per loan depends on both the company from which they borrow and the local laws that are in effect where the lender is located. Some payday lenders do try to keep their rates competitive but to others, it seems, the sky is the limit. Rates for payday loans in Australia range from 26% to over 1300%.
Those wishing to take a payday loan in Australia have the option of doing so online or in one of the many brick and mortar locations throughout the country.
How it Works
Those wishing to take out a payday loan in Australia should do a little homework prior to choosing a lender. The terms, including interest rates, qualifying criteria and the length of time allowed to pay back the loan, vary between lenders. Shopping around could save you money and, in some cases, help you qualify for a slightly larger loan.
Payday lenders offer loans of between $100 and $600. How much one will be able to borrow depends on their income, how often they are paid and whether or not they have borrowed with a particular lender in the past.
Typically, first time borrowers are allowed a smaller amount than those who have a bit of a history with the lender. If a borrower is paid only once a month, they will be allowed to borrow a larger amount than someone who is paid weekly or every other week.
If you choose a lender online, you will simply fill out an application and upon approval, the money could be deposited directly into your bank account in a matter of hours. If you choose a storefront lender, you may be able to choose between being given a check or having the money directly deposited within a day.
The most common way to pay back a payday loan in Australia is through direct debits. Upon applying for the loan, you agree to allow the lender to debit your bank account for payments for the loan. Usually, the loan will have to be paid in full within one to two pay periods.
Depending on your pay cycle, some lenders will break the payments into two payments, while others prefer one lump sum payment.
If you are able to pay the loan back early, you may save money on the interest rate and some of the fees. However, each company varies in how they handle early repayment, so be sure that you fully understand all of the fine print on your loan documents before agreeing to the loan.
Once the loan has been paid back, you will be eligible to take another payday loan. Usually, you will be able to borrow a larger amount once you have successfully paid back your first loan.
How Payday Loans May be Helpful
For unexpected situations, such as a car that breaks down, a payday loan can be quite helpful. This type of loan should only be used to assist in dealing with short term financial situations. Because of the very high fees and interest rates, they should not be used for help with longer term financial problems.
Criticisms
As mentioned above, some are critical of payday loans. They say that this type of lending causes those who are already in financial trouble to get even deeper in the hole. Payday lending opponents feel that borrowers should be limited in the number of loans that they are allowed to take each year and that the interest rates should by much more strictly limited.
Others, however, feel that this gives an option to those who may have no other choice for financial emergencies.
Both sides of the debate continue to lobby, some for stricter laws and some for more lax control of payday lending.
