What are payday lenders?


Payday lenders offer quick cash payday loans in Australia. This loan type gives the borrower instant cash in return for a short loan term and high interest rates with monthly fees. 

However, emergency loans with fast approval are not a transparent financial solution and may worsen your financial difficulties. You could find paying your bills more challenging than ever as you move further away from financial independence.

Before borrowing money, check your options and assess whether a payday advance is the right step. Making the wrong financial decision may force you into a cycle of debt and heighten your money anxiety.

This is where we can help. Find out more about personal finance so you can better manage your money. How do payday lenders work, and what are the available alternatives?

Let’s get to the following commonly asked questions:

●   How do payday lenders work?

●   Is there a controversy surrounding payday lenders?

●   What are the alternatives to payday lenders?

●   How can I identify reputable payday lenders?

Q1. How do payday lenders work?

Payday lenders offer fast cash loans to people who need the money quickly. You may also hear this loan type being called ‘quick loans’, ‘fast loans’, or even ‘bad credit loans’, although payday loans are the standard term. 

These businesses market their loans as the answer to all your problems, providing cash you can quickly get through a money transfer into your bank account. Payday lending is a proper lifeline if you face financial hardship or a low income. 

However, as always, there are strings attached to instant cash loans. Typically, you will face high loan interest rates and short-term loan repayment periods. Rigid payment plans will make paying living expenses difficult and could worsen your financial situation. 

Payday loan lenders profit through the high interest rates and the default fees that grow into debt traps. Short loan terms increase the chance that you will default on your monthly repayment and miss the due date, increasing the amount of money you owe lenders.

Read more: What is a bad credit score in Australia?

Q2. Is there a controversy surrounding payday lenders?

Some payday loan lenders have been accused of predatory lending, preying on vulnerable people with short-term quick cash loans. Many borrowers find it impossible to repay the loan due to spiralling fees and increasing loan amounts, ultimately damaging their credit scores.

The longer you take to repay the loan cost, the more you will pay back to the lender. With interest mounting, this is always considerably more than the amount borrowed. 

However, consumer groups are advocating for change in how payday lenders treat individuals and their lending policies. 

The Australian Government is now prohibiting payday lenders from extending loans to more than 10% of a borrower’s income. Stricter rules aim to protect loan borrowers from mounting costs and some situations where a whole month’s paycheck has gone straight to a lender. 

Additionally, these outlets make applying for potential borrowers far too easy. You can apply online quickly and get a decision in minutes. You can receive the money as soon as you enter your banking details without giving enough thought to paying the loan back. 

Therefore, it is easy to see the attraction and the desire to take out a payday loan. 

With rising interest rates and surging cost of living, Australia possesses some of the highest debt levels globally. 

Image: Nimble

Australians also save so much less, providing a ratio of 2.8%, falling from 6% previously.

Image: Nimble

With finances looking so bleak, who would refuse a quick cash injection into their bank account? However, before accepting this line of credit and making a loan application, consider the annual percentage rate (APR). Decide whether your advance payment is worth the interest you will pay back.

Read more: Financial Hardship - What it's like living with debt you can't repay

Q3. What are the alternatives to payday lenders?

Alternatives are available until the perfect payday lender appears with fair yet easy loans. You could apply for personal finance with a loan if you have a solid credit history. Check out personal loan deals to assess your eligibility and secure a lower interest rate and responsible lending terms. 

Refinancing is also another option to help you raise money and lower monthly debt repayments. You could refinance a home loan or a car loan to help you get financially fit. Look out for deals on home loans and car loans so you can improve your financial health today.

You could also check out credit card offers, offering balance transfer incentives to reduce the interest you pay or cash-back on every purchase. Credit unions are also loan lenders and reputable sources of finance that could offer you great deals on unsecured loans. 

Ultimately, you need to revive your credit score and try to save cash in a savings account. It will soon build up even if you can only save a little cash occasionally. Additionally, improving your credit rating will ensure that you receive strong offers from lenders with low rates.

Read more: How to refinance a personal loan?

Q4. How can I identify reputable payday lenders?

Reputable lenders offering a payday loan online will provide complete transparency of charges and fees. An advance loan online application will give security to protect you so you do not rush into accepting the payday loan cost. 

A cooling-off period is standard, so consider whether the payday loan is right for you. During this time, you should be able to return the amount of money to the lender and cancel payday loan applications and agreements.

Also, ensure that a lender has a credit licence to lend money to consumers. This is essential, so read the credit guide before entering credit contracts.

Seek guidance on reputable lenders from the national debt helpline. Seek legal advice from a financial counsellor on the National Consumer Credit Protection Act 2009, which offers the consumer financial protection and greater financial literacy.

Credit ratings

Your credit history details if you have paid past debt repayments on time. If you have defaulted payments, you will have a poor credit score and will have limited credit options available. Try a credit-building credit card to improve your credit score today.

Debt consolidation

Debt consolidation is a quick and easy process to merge all your debts into one manageable monthly payment, paying less interest. 

With debt consolidation loans, you will find your debt problems vanish, so you can start to sleep properly again at night. Seeing a financial counsellor is also something to consider for tailored recommendations.

Related: Personal loan calculator

Summing up

Payday lenders are ultimately business owners aiming to secure the highest profits. You should, therefore, be careful of the loan terms available from some lenders and always consider other types of loans before falling into a cycle of debt.

Wait! We’d love to hear your thoughts 

If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped us at WeMoney to improve the app to help it be the best that it can be. A massive thanks to each one of you for making that happen!

Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

Turn your learnings into practice
Try WeMoney today.