Payday lenders offer high-cost, short-term loans to people generally offering up to $2,000 in cash with some up to $5,000 often with a quick turnaround.

But you have to beware when you enter into a payday loan, so that you don’t get in over your head.

Payday lenders usually have higher risk thresholds, meaning that they can offer loans to people with less than perfect credit history – much more than lenders like banks and credit unions. Plus, because they are often spun off or backed by private enterprise – there is more incentive to sign off on loans that will then be repaid with high interest rates (which is where the business makes its money.)


If you have a car or a home loan, the application fee is often a few hundred dollars – or a small percentage of the total amount borrowed – often offset by your deposit. With payday lenders, the fee can be up to 20% of the loaned amount, but because there are limits on how much they can lend (up to $2000), this means that the application fee can add hundreds of dollars to a relatively small loan.

For example, a $1,500 loan can attract up to $450 in application fees – so you’re essentially borrowing $1,950 straightaway, and then hit with regular account-keeping fees the longer it takes to repay your loan.

The government’s MoneySmart financial guidance website has a calculator to show you how much you’ll actually spend taking out a payday loan – as well as alternative options such as the No Interest Loans Scheme (NILS) available specifically to people on low incomes and matched savings schemes.

Impact on credit file

If your credit history is already less-than-perfect, then you might think that payday loans are one of the few options still available to you.

Unfortunately, payday loans are a lose-lose situation, they’re generally used as a last resort to cover unexpected bills, which is usually a domino effect of not having strong savings history or overcommitting financially: not a good sign to lenders in the future.

Secondly, if you are declined for a payday loan, it might suggest deeper issues with your credit history that you should resolve before committing yourself to another financial product. You might be declined for a payday loan if you’ve had two payday loans in the last 90 days, or you’ve simply stretched yourself too thin financially; and while it’s not good to be declined from any finance provider, a declined application from a payday lender is considered more serious on your credit history than a declined application from somewhere like a bank due to payday lenders more relaxed lending criteria.

Don’t get stuck with a pay day loan!

Know what you’re paying before you sign up

So there are the high establishment fees, a one off fee of 20% maximum of the amount borrowed – but did you know that payday lenders are no longer allowed to charge interest on loans? They can charge a maintenance or account-keeping fee up to 4% of the total amount borrowed which may not seem like much, but the longer you have an outstanding balance with them it begins to add up (after 5 months, it’s an additional 20%!) There is also a provision for a default fee which can be up to twice the total amount of the loan.

Payday lenders are not allowed to charge direct debit fees on loans taken out after February 2017, or charge interest on the loan, so don’t get stung by charges that, legally, they’re not allowed to charge you.

If you have a loan from before this date, you may still be charged for direct debit fees for as long as you have an outstanding balance.

Alternatives to payday loans

If you receive certain Centrelink payments, you can request an advance payment with no interest charges once a year if you’re eligible with payments that are manageable for your income.

Other options are available if you’re on a low income, you may be eligible for the No Interest Loan Scheme (NILS) to buy essential household items, health items like wheelchairs or pay for car repairs (if there isn’t a strong public transport network where you live.)  The scheme offers loans between $300 – $1,200.Another program called StepUP offers fixed rate, unsecured personal loans with a low interest rate and no fees or charges available from $800 to $3000

Once you’ve successfully paid a NILS and StepUP loan back, you could qualify for a savings matching program like AddsUP or Saver Plus which help you start to build your savings and decrease your reliance on credit – by matching your first $500 in savings dollar for dollar.

The team at CarBeagle are always here to help you find the best finance options for your lifestyle. We work with lenders from the biggest banks to the most specialised finance providers, to find a tailored option that works for you rather than shop your profile around to the first lender who says yes.