When you think payday loans do you see shots fired and holsters waving like we’re in a western movie? Well, you’re not alone. Payday loans are at the heart of Australia’s alternative lending market. However, there are several payday loans pitfalls that disrupt the integrity of the market. Traditionally, they have been a grey area, but recent regulation has transferred the market and produced healthy alternatives to payday loans.
Before we dive into all this, let’s look at what payday loans are.
Firstly, what are payday loans?
A payday loan traditionally refers to a high-interest short-term loan. The payday loan term will typically be over the persons next couple of “pay days” (hence the name). The conditions of a payday loan generally include making repayments every paycheck during this time. Some lenders will organise a direct deduction from your pay. The longer your loan term, the more you pay in interest.
The objective of payday loans is to help those who need an extra bit of cash to see you through to the end of the month. Payday loans may seem like a saving grace, however, they can leave us with high debt and high repayments, as they are over such a short term. The last thing you want when you’re in a pickle financially is a bad loan that could put you at risk of ruining your credit score.
There are payday loans pitfalls that can leave you wondering whether there is another option for paying off pesky bills or unexpected medical bills. So, let’s look at payday loans. What are some payday loans pitfalls and what are healthier alternatives to payday loans?
So, how do payday loans work?
Typically, the goal of a payday loan is to boost your cash flow until your next payday arrives. You hand over a blank cheque and a copy of your driver’s licence and you can be approved for a payday loan, no credit checks – nothing! That may sound like a dream, but there is a chance the borrower could dig themselves into debt they may battle to escape from.
Picture this – you write a postdated cheque for the amount of your loan, plus additional fees and charges, and once you receive your next paycheck, the lender will cash your check. You may extend the loan, resulting in a cycle of debt that can be difficult to recover from.
There are buckets of payday loans pitfalls to avoid.
Payday Loans Pitfalls
Payday loans pitfalls: Lack of responsible lending practices
Perhaps the most dangerous of the payday loans pitfalls are the accusations of irresponsible lending practices that the payday loans industry has been plagued with for preying on vulnerable individuals. Their services are typically targeted towards poorer communities, with fewer means to repay the payday loan.
Payday loans pitfalls: Must repay the loan as soon as possible
If you are able to repay your payday loan on time then you won’t incur large fees, however, failure to repay your loan could incur additional costs and fees that could lead to a spiral of financial hardship. This risk is often increased with shorter loan terms, as the weekly or fortnightly payments are much higher over shorter periods.
Payday loans pitfalls: Potential effect on mental health
With the pressure of repaying your loan over a rather short period of time and the temptation to extend your loan if you cannot repay it, payday loans could have a negative effect on your mental health is the large repayments are causing you stress.
Payday loans pitfalls: Chance of falling into unmanageable debt
With the readily available option of taking out a loan each pay cycle after your previous one is paid, many who take out payday loans fall into debt spirals.
How Google protects customers from payday lenders
With the rise of payday lenders, the internet has become a playground for the industry. With Facebook and Google ads, finding a payday lender is too easy. In May 2016, Google addressed this problem by imposing a ban on all payday loan advertisements. In addition, the ban includes any borrower that requires customers to repay their loan in 60 days or less. It also requires all lenders to display a disclaimer on their site stating their loan terms and whether they work with third parties.
ASIC also requires lenders to conduct thorough, reasonable inquiries into applicants financial situation. Furthermore, with the increase of regulation surrounding payday lenders, we have seen healthier alternatives for pay loans pop up!
So, it seems payday loans are a definite no-go! You may be thinking what other options are open to you when pesky financial problems arise. Well, don’t fret just yet, there are healthy alternatives to a payday loan.
Potential alternatives to a payday loan
- Charge the amount to your credit card
- Ask a family member or friend for a loan
- Discuss payment plans with your current creditors or seek out a financial counsellor service
- Apply for a traditional small personal loan with a longer repayment period (that’s where Nifty Loans comes in!)
What are Nifty personal loans?
Nifty Loans offer personal loans for those who need a financial pick-me-up. We access applications quickly and efficiently, keeping in mind that every situation is unique. To help avoid our customers running into financial hardship and reduce the chances of payday loan pitfalls, we don’t offer loans with a repayment period under 3 months and prefer our loans to go over a longer period. Nifty is dedicated to responsible lending practices, so we will never approve a customer that cannot meet their proposed loan repayments.
Why apply for a personal loan?
There is a myriad of reasons why applying for a personal loan may help your situation. Much like borrowing money off your credit card whilst you’re short of funds, a personal loan can act as a helping hand in pesky financials muddles.
Reasons to apply for a personal loan:
- Medical bills
- New or used car
- Car repair or to pay hefty rego bills
- Broken down appliances
- Other Unexpected bills
- Fund your next travel adventure
- Pay the steep cost of rental bond
- Pesky dental bills (we all have them!)
How does Nifty loans differ?
Nifty is a small personal loans company. We are a far cry from the neon signs you see advertising payday loans. Our business is 100% online. We have a dedicated customer service team that is ready to answer any questions regarding your finances.
Let’s take a closer look at how Nifty loans differs from traditional payday lenders:
Nifty adheres to responsible lending
We use data to verify your income and expenses
Some payday lenders allow their consumer to enter their income and spending habits manually, cultivating a system where desperate borrowers lie to get approved for a loan. To avoid these payday loans pitfalls, Nifty utilises the latest in safe banking technology to access a read-only view of your bank statements and spending habits. From this, we can use confirmed and verified information. The safety of your information is of utmost importance to us, so no need to fear, we will safeguard your privacy.
We offer Financial hardship
When our customers are suffering from financial hardship we can set up a repayment plan or hardship agreement to help them get back on track.
We do perform credit checks
When we access a personal loan application, we do conduct credit checks. However, they are only one piece of our master approval plan. To give the right help to clients who need it and can afford to repay their loan principal.
We have minimum requirements before you can apply for a personal loan
Nifty wants to provide small loans to people who require financial assistance, however, can also afford repayments. We do not lend to clients who have proven they cannot pay back the loan principal. To avoid clients who we cannot approve applying for our personal loans, we have devised four basic minimum requirements for our loan application:
- You must be at least 18 years old
- Must an Australian citizen or permanent resident
- You’ve been receiving a regular income into a personal bank account for at least 3 months.
- Have an active phone number or email address
In addition, simply because an applicant may meet these requirements doesn’t secure an approval. Furthermore, we do perform credit checks and apply a diligent approach to our responsible lending practices.
choose your preferred repayment plan
When you apply for a loan through Nifty Personal Loans, you can select your preferred payment term. We encourage all your applicants to choose a plan that realistically works with other financial commitments they have. Our friendly customer service is ready to help any applicant with questions they have regarding their loan application and the terms we offer.
Flexible loan terms
Nifty loans offer flexible loan terms for all applicants. Customers are not restricted to a 16-day loan term. Our minimum loan term is 3 months with a maximum of 24 months.
Supportive customer service team
Nifty loans have a friendly and dedicated customer service team. Whether you need to have a chat with a human or simply want your questions answered, Nifty’s customer service is here to assist.
Furthermore, providing financial services that are helpful and contribute to someone’s livelihood should be the main purpose. These financial services should avoid the payday loans pitfalls mentioned before. Services that are transparent about costs, and are available to discuss any questions or inquiries you may have.
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