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Understanding Payday Loans

When you're strapped for cash, a payday loan (also known as a small-dollar loan or a payday advance) can seem like a quick fix to tide you over to the next payday. These loans can often be organised very quickly, sometimes over the phone or online. However, the downside is high fees and charges, including very high-interest rates. These costs can quickly add up, potentially leaving you worse off financially. 

They are called payday loans, small amount loans, cash loans, small loans, short-term loans and more, but the allure of getting cash quickly this way can conceal significant hidden fees and costs that leave a lasting sting on your hip pocket.

Sometimes a crisis comes up in life, and you need money quickly. Or sometimes, despite your best efforts, you may fall behind paying living expenses like rent, electricity and food. If you don't have an emergency fund or regular savings, you might consider asking a friend or family for help or borrowing some money from a credit provider.

Payday lenders often offer up to $2,000 loans, promising fast, convenient, and easy access to cash.But are payday loans for bankrupts Australia?

These modern-day loan sharks prey on low-income earners, who are especially vulnerable to this dodgy industry. Since arriving in Australia in 1998, payday lenders have captured a part of the market largely abandoned by mainstream credit suppliers. A typical payday loan will be a cash loan for an amount of around $200 or $250 with approximately $300 to be paid back a week or two later. Demand for these loans is high, with recent estimates indicating the industry across Australia to be worth $200 million per annum, with an estimated 12,800 payday loans transacted each month Australia wide.  

When life throws a spanner in the works, it's usually at the most inopportune time. These unexpected events always happen when you don't have any spare cash or budget for anything going wrong. When this happens, it's easy to feel stressed and unsure of where to turn. A personal loan might not be an option for you, and your savings are empty. So, what do you do? Where do you turn for help? The answer could be a payday loan in Australia. Not sure what a payday loan is? We can help.

What is a payday loan?

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A payday loan is a small loan that you can apply for if you need some spare cash in a short amount of time. A payday loan Australia is a small loan designed to help you cover costs in the event of unexpected financial shortages or unexpected costs that you didn't budget for. If you cannot cover costs yourself, a payday loan can help you out in the short term. They're not supposed to be long term loans, and as such, they are typically for smaller amounts and shorter loan terms than your traditional personal loan.

A payday loan is a loan of up to $2,000 that you have between 16 days and one year to pay back, according to the Australian Securities and Investments Commission (ASIC) 's Moneysmart website. Payday loans are also known as small amount credit contracts or SACCs.

Lenders cannot legally charge interest on payday loans. However, there are often very high overall fees attached that aren't always obvious upfront for borrowers. These fees are capped but can still be very high compared to most other forms of credit. They can include an establishment fee (up to a maximum of 20% of the amount borrowed), a monthly service fee (up to 4% of the amount borrowed every month), default fees and enforcement expenses. Moneysmart warns that if you take out one of these loans, you'll end up needing to pay back "a lot more than you borrowed".

More credit, more debt

Tom Abourizk, a policy officer at the Consumer Action Law Centre, tells us lenders such as MyPayNow, which promotes the fact that it doesn't do credit checks on people before giving them wage advances, are likely to attract customers who "know that credit might not be available to them otherwise… and often they're people in real desperation".

But MyPayNow's managing director, Bronson Powe, argues credit scores vary between agencies that compile them and may contain outdated information. So the company uses its own "extensive assessment to make sure our product is suited to [each customer]", he says.

Applicants must be employed and earn at least $450 a week, among other criteria, to be accepted. "MyPayNow declines 60% of its applicants as we deem them to be unsuitable for our service," Powe says.

Pros And Cons Of Payday Loans


  • They're quick and easy to apply for - applications can be completed in just a few minutes and are usually 100% online.
  • Quick outcomes - you often get your outcome the same day that you apply.
  • They're convenient - payday loans are great options when you don't have time to save up or wait for traditional lenders to give you an outcome.
  • You can pay them off fast - many lenders allow you to pay your loan off early with no additional fees.


  • High fees - payday loans Australia can have high-interest rates that can make the cost of the loan more expensive than many people realise
  • Possible to overuse - it's possible to fall into a debt trap if you come to rely on payday loans too often.
  • It can affect your credit score - if you make too many applications for a payday loan or use them too often, it can lower your credit score.
  • Hidden fees - some lenders will hit you with fees you might not have been expecting. Always be sure to check your contract before signing and be aware of all and any fees you could be charged. Do your best to avoid these by making your repayments on time.

Risk of unmanageable debt

If you borrow money and need to repay it with high fees, charges and penalties payable, you will be more likely to get into unmanageable debt than if you access the money more cheaply. This can become a serious financial problem in the longer term.

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Potential damage to your credit score

If you repeatedly shop around for credit and apply to multiple credit providers in a short timeframe or miss any loan repayments, your credit score might drop, and this could stay on your credit history for some time. In addition, having a low or bad credit rating can affect your borrowing capacity in the future. For example, it might affect whether you are approved for a car loan or a home loan, plus the interest rate a lender charges you.

Overall cost

Payday loans bring high fees – such as an establishment fee (up to a maximum of 20% of the amount borrowed), a monthly service fee (up to 4% of the amount borrowed, every month), default fees and enforcement expenses.

Who uses payday loans?

Research by a national coalition of consumer advocacy groups, Stop the Debt Trap, shows over 4.7 million individual payday loans were issued for around 1.77 million Australian households between April 2016 and July 2019, generating about $550 million in net profit for lenders. Many Australians experiencing financial stress turn to payday loans, with earlier research showing that payday loans are increasingly available on digital platforms. Often, vulnerable women, commonly with sole responsibility for children, are relying on payday loans as emergency cash for household expenses. These women are unfortunately also taking out multiple loans in many cases, according to Good Shepherd Microfinance.

A payday loan in Australia is a loan that many people can apply for. Eligibility criteria are simple so that the majority of individuals can apply. If you can answer yes to the following, then you can apply today:

  • Are you an Australian citizen or permanent resident?
  • Are you at least 18 years old?
  • Do you have a personal phone number and email address?
  • Do you have at least 3 months of bank statements?
  • Do you have at least three months of work history or Centrelink benefits?

What are some alternatives to payday loans?

Australians should seek free, professional help from a financial counsellor instead of taking on debt from a payday loan or an alternative like a personal agreement.

"Consumers who are experiencing difficulties making payments for utilities, telecommunications or loans can contact their service provider for hardship arrangements such as an extension of time for payment," said Dr Chen.

"Additional help such as utility relief grants or household relief loans may be available, and people who are experiencing family violence and are facing financial difficulties can seek hardship assistance from their credit or utility provider."

Dr Chen said that if consumers have trouble reaching suitable hardship arrangements with a credit or utility provider, they could consider contacting a financial counsellor to assist with negotiations, which might lead to better outcomes.

"Free debt advice and debt negotiation are available from the National Debt Helpline (NDH)," she said.

The NDH are both free and impartial. A financial counsellor can help if you need to "negotiate a settlement of debts" with existing credit providers, plus join calls with you as an advocate if you need support handling difficult money conversations with credit providers.

Separate from addressing how you manage debt, ASIC's Moneysmart suggests the No Interest Loans Scheme (NILS) or a Centrelink advance payment may be suitable, cheaper options if you are eligible and need to get money fast.

Frequently Asked Questions About Payday Loans

As a part of responsible lending practices, lenders may conduct a credit check on your application. This credit check is nothing to worry about, though, as your future lenders will also be taking into account your current banking habits when they make their decision. A credit check is just a part of their responsible assessment practices.


Generally, you can expect to receive your outcome within 24-hours of submitting your application. However, if you make an application outside of business hours, expect to hear back from your lender first thing next business morning.

A payday loan, or small amount credit contract, or SACC, might be marketed to you as a 'bad credit payday loan'. This means a lender targets the loan towards people who have a bad credit score, as they may be less likely to get credit approval. Keep in mind that if you have a low credit score, you are likely already financially vulnerable – you could have fewer borrowing options than someone with a higher score. In addition, making repeated requests for credit can negatively impact your credit score. We've covered what to look out for if you are alternatively considering a bad credit personal loan.

Research by Stop the Debt Trap suggests payday loans can be "devastating for the people involved" because "these products are aggressively marketed, which can drive people away from other services that may be more suitable, such as free financial counselling or no or low-interest loan schemes". The National Debt Helpline says the risks of payday loans include very high costs, needing to borrow again to repay the loan, a potential negative impact on your credit rating, high default fees, and being difficult to get out of. Plus, it adds, payday lenders usually sign customers up to pay by direct debit on payday. This can mean money is taken out of your income before essential expenses such as food and rent. So if you find yourself unable to make ends meet, you could find yourself in a debt trap that brings more serious long-term consequences.

Payday lenders tend to be more flexible in their borrowing requirements than major banks. So, if you're self-employed or have a poor credit rating, you might pass some payday lenders' borrowing standards. However, you'll still need to show you can repay the loan, and this will be assessed based on factors such as your income, spending, identity, employment and credit score. If you are under 18, are not an Australian citizen or resident, have unstable or insecure employment, have a history of poor spending habits, have a low income or have a bad credit score, you might be declined access to a payday loan. Speaking to a financial counsellor for advice on getting your debt under control could be helpful, ideally before you consider applying for a payday loan. Free, confidential advice is available from the National Debt Helpline on 1800 007 007.


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