What are payday loans?

What are payday loans?

Payday loans, also known as cash loans, small loans, micro loans and short-term loans, are sometimes used as a short-term solution for cash-strapped individuals. They are amounts of up to $2000, with loan terms of up to a year, and have historically attracted very high fees. They have incurred the wrath of both government and lending watchdogs for the extraordinary amounts consumers have been known to repay. Sometimes it’s up to a few hundred per cent of the original borrowing amount. As such, they should be viewed as loans of last resort.

Why do people take out payday loans?

  • Financial emergencies, such as short term shortfalls;
  • Payday loans often have a very quick approval time;
  • They are often directly paid into the borrower’s back account.

What is the problem with payday loans?

According to an Australian Securities and Investments Commission investigation, “consumers of payday loans were charged costs that, given their financial position, put them at risk of an ongoing cycle of disadvantage that reduced the potential for financial and social inclusion”.

The charges associated with payday loans are often extraordinary. In one instance, reported by ASIC, a consumer was charged more than 800 per cent interest on a washing machine, which meant they spent more than $3000 on a product worth little over $300.

Has anything changed to make payday loans safer?

In the last couple of years, an increasing number of provisions have been introduced to try to protect consumers from predatory lending practices, such as restrictions on very short loan terms, restrictions of multiple loans in a 90-day period and the addition of new warnings and disclosures. Lenders can now charge a maximum of 20 per cent as an establishment fee and 4 per cent a month on the loan amount. However, that is still significant and the onus is on the consumer to be prudent about the suitability and dangers associated with payday lending.

Below are a couple of examples of how much a shorter and a slightly longer term payday loan could cost:


Bob had several overdue bills and didn’t get paid for another three weeks. He had received repeated warnings and opted to get a payday loan after the water company threatened to disconnect him. He took out a $400 loan with a 30-day term. He was charged 20 per cent upfront – or $80 – and $16 in monthly interest at 4 per cent a month. He had to make three payments of $165.33. In total, he had to pay back $496 – $96 more than he borrowed.


Wendy had to move house and needed $2000 to cover her moving costs. She opted to take out a payday loan for the aforementioned amount and decided to pay it back over a year. She was charged the maximum fees her payday lender was able to charge. That meant her establishment fee was $400 at 20 per cent and her monthly fees were $960 over the course of the year at 4 per cent per month. Each fortnight, she would have to pay back $129.23 and in total she would have to pay back $3360.

Alternatives to payday loans 

Given the high interest rates and fees associated with payday loans, prudent borrowers should explore alternatives before going down the path of cash loans. Here are some other options that are sometimes explored before cash loans:

  • Centrelink advance – Centrelink recipients should investigate the possibility of a payment advance if they are having trouble paying bills or other expenses. Sometimes there are intermediary services on offer.
  • Low interest rate credit card – While credit cards still charge interest, there are cards that offer significantly lower rates than payday loans.
  • Personal loans – Some personal loans cater to borrowers with one off expenses at a lower rate of interest than they would get for a payday loan.
  • Ask for an extension – some providers offer extensions for people who are having financial difficulties. Before seeking a loan of last resort, it’s worth inquiring about whether there are other options for people who are unable to pay their bills or for an immediate repair.

Where to get help?

If you are having financial difficulties, there are always places to turn for help. As a starting point, call the National Debt Helpline on 1800 007 007, which is open Monday to Friday between 9.30am and 4.30pm and is free. More support is available here


Cash loans, also known as short term or payday loans, should only be used when absolutely necessary and NEVER used for long-term borrowing. They are designed to fill once-off gaps in your cash flow and need to be repaid in full the next time you get paid. If you are not able to repay the loan in full with you next pay, the loan will become very expensive. Always look to more traditional options such as savings, credit cards, overdrafts or family first, and only use a cash loan as a last resort. If you have ongoing financial problems please consult a financial counsellor to help with a long term solution.

Call the National Debt Hotline: 1800 007 007  

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Learn more about personal loans

Can I get a no credit check personal loan?

Personal loans with no credit checks are available and called ‘payday loans’. These are sometimes used as short-term solutions for cash-strapped Australians. They often carry higher interest rates and fees than regular personal loans, and individuals risk putting themselves into a worsened cycle of debt.

What interest rates are charged for personal loans?

Lenders aren’t allowed to charge interest on loans of $2,000 and under. Instead, they make their money by charging a one-off establishment fee of up to 20 per cent and a monthly account-keeping fee of up to four per cent. Lenders might also ask you to pay a government fee.

For loans between $2,001 and $5,000, lenders can make their money in only two ways: a one-off fee of $400 and annual interest rates of up to 48 per cent.

For loans of $5,001 and above, or for loans that have terms longer than two years, lenders can charge annual interest rates of up to 48 per cent.

Those fee caps don’t apply to loans offered by authorised deposit-taking institutions such as banks, building societies or credit unions, although such institutions are highly unlikely to charge interest rates of anywhere near 48 per cent.

How long are $3000 loans?

Medium amount loans can be repaid between 16 days and 2 years. Many personal loans have terms between 1 year and 5 years, though some are as short as 6 months while others last for 10 years.

Generally, the shorter a loan’s term, the more expensive your regular repayments may be, but the less total interest you’ll pay. Loans with longer terms mean more affordable repayments, but more interest charges over the full term.

Can I get a fast loan with bad credit?

Some lenders offer fast loans to borrowers with bad credit. Providers of small payday loans of up to $2000 or medium amount loans of up to $5000 may have no credit checks, though these lenders will usually want to confirm you can afford its loans on your income.

What can quick loans be used for?

Many borrowers use quick loans to cover short-term or urgent costs, such as paying for car repairs, medical bills, or replacing broken appliances or electronics. Quick loans often have high interest rates compared with regular personal loans.

Before applying for a quick loan, consider your other available options, such as working out a payment plan or applying for an advance or extension. 

Are there $2000 emergency loans?

If you’re having trouble being approved for a loan of less than $2000 and urgently need to purchase household essentials, there may be emergency loan options available to you.

For example, the No Interest Loans Scheme (NILS) allows low-income borrowers to take out interest-free loans of up to $1500 for essential goods and services.

For further assistance, consider contacting a financial counsellor, or calling the National Debt Helpline on 1300 007 007

Do student personal loans require security?

While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, which typically have higher interest rates.

Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will fully or partially guarantee the loan, taking on the financial responsibility if the borrower defaults.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).