A payday loan is a high-cost short-term loan of up to $2,000 that is usually paid to the applicant within 24 hours.
These loans are typically reserved for emergency situations such as medical treatment, home repairs and car repairs.
The term ‘payday loan’ implies that the borrower intends pay back the lender through future income.
Payday loans tend to come with high fees, which is why they should only be used for emergency purposes.
Bad credit payday loans enable Australians with bad credit to borrow money from payday lenders.
Payday lenders have different criteria than major banks when giving loans, making them more lenient towards those who have bad credit.
Legit payday loans for bad credit involve a lender looking at the borrower’s employment situation in addition to any other income such as Centrelink payments.
Payday loans are offered by multiple financial institutions willing to take on the risk usually associated with high-cost short-term loans. Payday lenders tend to be small, non-bank institutions rather than well-known banks.
Many payday lenders offer loans through an online or phone application process.
In addition to providing personal details and confirming identification, borrowers will also need to provide banking details and evidence of income.
After a quick credit check by the lender, most loans are assessed and - if approved - delivered within 24 hours.
Payday loans for bad credit instant approval are possible, but a severe history of default from the borrower could end in the application being rejected by the lender.
Lucy needs a car to get to her job, but it stopped working and required $1,400 in repairs that she couldn’t afford. Lucy has bad credit and just four months of employment, so she was only eligible for a payday loan after exhausting all other lending options.
Within 24 hours, Lucy received her payday loan with a six-month term and got her car fixed. Lucy paid off her debt in four months and avoided any extra monthly fees and arrears fees. She also made sure to pay her monthly balance on time to avoid late payment fees.
Lucy ended up paying the following over the course of her payday loan: $1,400 loan amount + $280 establishment fee (20 per cent on original loan amount) + $224 monthly fees (4 per cent on original loan amount) = $1,904. In the end, Lucy paid and extra $504 (36 per cent) for her emergency car repairs.
Most payday loans will be deposited into the applicant’s account within 24 hours.
Given the nature of these loans (e.g. emergencies), some payday lenders can also deliver cash to the lender’s bank account within minutes.
The time it takes to receive a loan can be affected by the applicant’s credit history. Borrowers seeking an urgent payday loan with bad credit could see a longer application process.
The pros of payday loans are:
The cons of payday loans are:
Because it can be quite expensive to pay off a payday loan, borrowers are encouraged to exhaust all other options first. Payday loans should only be used in emergency situations when no other options are available.
Yes, Centrelink recipients are able to receive payday loans under certain conditions.
The loan must not exceed 20 per cent of the applicant’s income if the borrower receives at least half of their income from Centrelink.
Borrowers can apply for payday loans with bad credit on Centrelink as long as they meet the above criteria.
Yes, self-employed people are able to receive payday loans as these lenders tend to be more flexible than major banks.
However, applicants who are self-employed will need to provide a history of income.
Borrowers will usually need to provide the payday lender with bank statements from the last 90 days.
Payday loans for self-employed people with bad credit can be obtained by applicants who can prove a solid history of income.
The best payday loans for people with bad credit in Australia are those that meet the borrowers needs but give reasonable expectations to pay off the debt.
Here are some things applicants should look for:
Gary plays guitar as a hobby and wanted to buy a new guitar for $1,700 but couldn’t afford it. Gary has full-time employment and fairly good credit. He wanted the guitar as soon as possible, so he applied for a payday loan without exploring other lending options.
Within an hour he received the loan with a one-year term for the new guitar. Gary unexpectedly lost his job and was late on four of his payments. Additionally, he was three weeks late paying off the debt within the loan term and receive arrears fees.
In the end, Gary paid the following for his new guitar: $1,700 loan amount + $340 establishment fee (20 per cent on original loan) + $816 (4 per cent on original loan amount) + $140 late payment fees ($35 per late payment) + $90 arrears fees ($30 per week) = $3,086. Gary ended up paying an extra $1,386 (about 82 per cent) on the price of the guitar. Had he explored other options, Gary could have found a more favourable loan for this non-emergency expense.
Given the notoriously high fees that come with most payday loans, it is recommended that borrowers exhaust all other options first. Here are some available alternatives:
Payday loans are expensive and should only be sought in the event of an emergency after all other lending options have been exhausted.
How much does a payday loan cost?
Payday lenders can’t charge interest on payday loans. But you might be charged these fees:
For example, imagine you took out a $1,500 payday loan with a 12-month loan term and fortnightly repayments. Here’s how much you might be charged:
As a result, your repayments would be:
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