Payday Loans - Payday Advances Examined

Payday Loans – Payday Advance Loans Examined?

Payday Loans Explained

To help you better understand the differences in loans available in the market place we have prepared the following information on payday loans.

A payday loan, which can be called a small amount loan, or a cash loan, is a loan of up to $2,000, which has a repayment period of between 16 days and 1 year.

The loan costs or fees charged may vary depending on the amount of money being borrowed. By law payday loan providers are only allowed to charge the following; one-off establishment fee of 20% of the loan amount and a monthly account-keeping fee of 4% of the loan amount.

So for example:

  • If the amount borrowed was $2,000 and the repayment period is 16 weeks or 4 months.
  • The establishment fee would be 20% of the amount borrowed which is $400, the monthly fees would be 4% of the amount borrowed, which is $80 per month.
  • The amount paid per month would be $680/ month by 4 months for a total of $2,720.
  • Therefore a total of $720 would be paid in fees on top of the original amount borrowed of $2,000.

Payday loans are normally repaid either as either as a direct electronic debit from your bank account or as a direct deduction from your pay. The payday loan repayments will usually be deducted on the day you are paid so it is very important to ensure there is enough money in the nominated account to cover the repayment. If there is not enough money in the account to cover the repayment you could incur significant default fees.

Payday loan providers are required by law to lend money responsibly, therefore not everyone will be able to get a payday loan. It would not be responsible for a payday loan provider to offer a loan if you have had many payday loans over a very short period of time as the debts could become unmanageable.

A payday loan provider will require the following information to determine whether you are suitable for a payday loan.

Bank account statements showing income received for the previous 90 days.

Income includes wages, Centrelink payments etc. These can normally be submitted either in paper statements or as a print-out from internet banking.

If you have more than one account where income is deposited then all account statements would need to be provided.

Under law the payday loan provider will need to verify your financial situation. Therefore they may ask a person to also provide, pay slips,  Centrelink statements, copies of bills, copies of credit contracts and or statements of accounts plus rental property statements indicating whether are up to date with rent.

For Centrelink recipients there are specific guidelines, which are applicable to payday loans. If the majority (50% or more) of your income is from Centrelink, then the repayments on the loan you are applying for must not exceed 20% of your income.  Importantly this also includes repayments from any other loans you may have. If your loan repayments exceed this 20% threshold they will not qualify for a payday loan.

Please consider whether a payday loan is the best option? Consider whether the money is really needed, where there are any other options or specifically whether a payday loan is the right option for you.

If you’re in financial difficulty, consider this about payday loans

If you are having trouble paying either your electricity, gas or water bill, telephone accounts we recommend you contact your utility or telephone provider.

Most of these companies have customer service departments, which can help develop a plan to pay a bill in installments, or you may be able to apply for a utility bill voucher.

Also, some companies offer what is known as “bill smoothing” which enables you to make regular payments towards future bills so it is not as painful when a big bill arrives.

There are also Australia wide assistance programs from the Salvation Army for electricity and gas utilities payments.   The Department of Human Services can help with electricity, gas, water and sewage rates and telephone via advance payments or utilities or telephone allowances. Telstra offers a telephone bill assistance program. There are Departments in each of the Australia States and Territories, which offer assistance via rebates or vouchers.

  • Australian Capital Territory
    • Department of Community Services
  • New South Wales
    • Trade & investment Resources & Energy
      • Low income Household Rebate
      • Family energy rebate
    • Water payment assistance scheme
      • Sydney Water financial assistance
      • Hunter Water payment assistance
  • Queensland
    • Department of Communities offers:
      • Electricity and gas rebates
      • Medical cooling and heating electricity concession scheme
      • Home energy emergency assistance scheme
      • Electricity life support.
  • South Australia
    • Department of Communities and Social Inclusion
      • Residential park concessions
      • Energy concessions
      • Water and sewage rates
  • Victoria
    • Department of Human Services
      • Utility relief grant scheme
      • Annual electricity concession
      • Life support machine electricity
      • Medical cooling concession
      • Winter energy concession
      • Service to property charge concession
      • Electricity transfer fee waiver
      • Water and sewage concession
      • Non mains water rebate
  • Western Australia
    • Department of Child Protection
      • Hardship utilities grant scheme

As can be seen from the above information there are a number of options available to you if you are in financial difficulty.

If you need help with your money problems and or budgeting to manage you monthly bills we suggest you contact a financial counselor.

A payday loan might sound like a fast and easy way to fix a cash problem, but we recommend you make sure it is the right choice for you. A payday loan has significant fees associated with the loan and there maybe other realistic options available to you.

Some of the information about payday loans included in the article was sourced from the ASIC website.  You can also find more here >>>

If you would like information about how to solve your debt problems please contact our Xdebt  customer service department by calling 1300 261 693 or fill in the form on the right.

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