Compare Payday Loans

How Payday Loans Work

Payday loans are a more expensive, short-term version of a personal loan capped at a few hundred dollars. If you have a bill to pay and you will get your salary in another week, you might be tempted to get the loan so you don’t default on your payment schedule and simply pay it back when you have your salary. Because payday loans are ‘low doc’ loans, meaning there isn’t a long process of filling out forms and days waiting for approval from the bank, people who can’t or won’t get a credit card or personal loan can also use payday loans as a quick solution.

Fast Approval

Payday loans are approved fast. In many cases, it can take nothing more than a phone call or online form and you don’t need to visit the lender’s office. Some providers promise cash will be available in your bank account within an hour, or within 12-24 hours. This has contributed to the popularity of the payday loan and the industry focus on short term lending. There are now traditional lenders like NAB in the short-term loan market, and the industry is becoming better regulated.

Expect a credit history check

You will need to give some proof of identity and other details to get approved for a loan.  The process operates in a similar way to a personal loan application; the products are just structured differently so short term requirements are taken into account. Fast online credit checks, and the ability to call and confirm payroll details means lenders can get this done quickly with no hassles.

Avoid Payday Loan mistakes

Check the fees and interest

Most payday loan lenders will charge a set up fee to administer a loan. This can also be called a ‘brokerage fee’, ‘application fee’ or draw down fee’. The money will be taken as a lump sump or charged as a percentage of the loan amount.

By law, in QLD, NSW and the ACT lenders are not allowed to charge more then 48% interest on payday loans. In Victoria, lenders’ fees aren’t included in the maximum interest charge, which changes if a mortgage is taken over goods. If there is a mortgage interest cannot be higher than 30%. If not, the limit is 48%.

Other states and territories don’t have a legal limit on interest for payday loans so it matters where you take out the loan.

Pay the whole loan back, immediately

The number one, golden rule with payday loans is that you cannot be stuck paying interest once the initial loan period ends. They are specifically designed for people needing a small amount of cash for a very short time, and that’s also what keeps the interest rates so high. If you don’t know that the money will be coming in to cover the whole amount of the loan you are taking out, think again about getting the loan, and seek financial advice first.

Understand the dangers

Many payday loan lenders can act the same way as other lenders and offer to loan you more than you originally asked for, or more than what you need. The best thing to do in that situation is to simply say no. Payday loans are for immediate cash needs. If you find yourself continually needing access to more cash, other options like an overdraft or credit card are worth considering. You should check out our section on alternatives to payday loans as well if you are seriously considering choosing a payday loan.

What to do if you’ve been charged too much interest

With better regulation and a bigger range of lenders than ever before, payday loans are finding their place in the mainstream short-term debt market. It’s still important to remember your rights, and not get taken advantage of . If you think the terms of your payday loan are unfair, or the interest rate is too high you can contact the Australian Securities and Investments Commission (ASIC) or the financial ombudsman service to seek advice.

Alternatives to payday loans

If you are considering a payday loan, but want to know what other options you have, there are at least a couple of others worth considering.

An overdraft

If you have a regular enough income, or regular deposits coming into your bank account, your bank will probably offer you an overdraft facility. An overdraft is attached to your normal bank account. It’s exactly like a short-term loan, where the bank will make funds available to cover expenses or when you need cash immediately but haven’t got it and charge a fee. The fee can be small in some cases (check with your bank) and it can mean a convenient source of money that you don’t have to go and get from somewhere else in an emergency. It also means you don’t default on your other payments for things like bills and subscriptions.

The amount of overdraft you get will depend on your income, what you have available in the bank and your credit history with your bank.  It can range from $200 to more than $1000 dollars.

An overdraft will be easy to get if you have been with your bank for a while too. If the bank hasn’t offered an overdraft, it’s possible to ask for one, or find out why you don’t have the option.

 A personal loan

If you need more than around $1000 or so, or aren’t sure how much money you actually need yet and you want to make a large purchase, then a small personal loan would be another option. You will have much more flexibility over the amount you can have, and how long you have to repay the loan as well as lower interest rates.

Why not check out what your options for a personal loan are, and see the best deals available with our handy loan comparison tool

A low limit credit card

If you don’t already have a credit card, or you haven’t considered one before, then it might be time to investigate a credit card with a low limit and low interest and fees.  Head over to our credit card comparison pages and take a look at what sort of deal you would be eligible for.

Having a credit card is a bigger financial responsibility, but if you pay it off every month, you will be building up a solid credit rating and you’ll always know you have access to funds for emergencies, and you can use a credit card for making online or card only purchases. When you’ve been using a credit card for a while, you can also consider switching to one with rewards and start getting something back for your smart money management.