Payday Loans Pitfalls | The Problems with Payday Loans

Traditional payday loans come with an array of pitfalls. These kind of payday loans are typically short term loans with high interest.

Nifty Loans will discuss payday loan pitfalls, and why a personal loan may be a more suitable option for you.

Payday loan problems

Payday loans are a credit option many Australians turn to when they need fast cash. They are short-term loans with a short repayment period and high-interest rates. Payday loans are often approved within minutes, so they can seem like a great option for people desperate for cash.

However, payday loans technically do not exist as they were made illegal in Australia in 2013. However, they are often referred to as Small Amount Credit Contracts (SACCS) which are similar to payday loans.

What are payday loans?

payday loan Australia is a high-interest, short-term loan. They often have short repayment terms; usually around 4-weeks.

Payday loans are typically repaid by:

  • The lender sets up a direct debit from your bank account, or;
  • A portion of your pay automatically being deducted each pay cycle.

It is not uncommon for people that take out payday loans to end up owing double the original loan value. This can end up leaving the borrower in a worse financial position than they were beforehand.

Key payday loan pitfalls

Lack of responsible lending associated with payday loans

Perhaps the most dangerous pitfall is the accusations of irresponsible lending practices. The industry has a reputation for preying on vulnerable individuals. This may be true for some lenders, but cannot be generalised to suggest that all small loan providers are bad.

No credit check payday loans

Many payday lenders offer borrowers ‘no credit check loans’. However, these lenders should be avoided as they are not adhering to responsible lending guidelines. Credit checks allow lenders to collect vital information to decide whether a loan is manageable for the borrower. This is to avoid the person overborrowing and incurring unmanageable, unaffordable debt. Alternatively, you could consider a bad credit loan from Nifty Loans.

Legal requirements for short term loan approvals

ASIC requires lenders to conduct thorough, reasonable inquiries into an applicant’s financial situation and reason for the loan before approving their application. This is to ensure that the information provided is accurate and correct and to avoid an applicant overborrowing. Small amount lenders must consider and adhere to the following:

  • At least 90 days of bank statements must be obtained. This allows for accurate verification of income, spending and how the customer currently handles money
  • For Centrelink customers, no more than 20% of their income can be spent on short term loans
  • If a customer is struggling to make repayments and defaulting on current short term loans, this can demonstrate the individual is currently in financial hardship and an additional loan would create further pressure
  • There is also a presumption of hardship if a customer has received multiple short-term loans in a short timeframe

Personal loans with Nifty Loans

If you are in need or urgent financial assistance and cannot utilise any of the payday loan alternatives suggested above, you may wish to consider a personal loan with Nifty Loans. Nifty Loans offers same day cash loans from $2,500 to $10,000, 100% online. We are one of Australia’s fastest-growing small lenders and specialise in delivering fast cash loans. We often process our applications within just 60-minutes* and support instant transfers on approval, meaning you could have your cash within 60-seconds** of approval.

To clearly visualise the difference between a personal loan and a payday loan, we have compared our personal loans with the average payday loan.

Nifty Loans Traditional Payday Lender
Loan Amount $2,500 to $10,000 $2,000
Loan Terms 9 to 24 months 4 weeks
Hardship Support Yes Yes
Online Yes No
Same Day Approval Yes Yes

It is clear that Nifty Loans offers the same benefits people turn to payday loans for, without the troubling interest rates and unmanageable repayment terms. We also offer bad credit loans to eligible borrowers. We adhere to the responsible lending guidelines by ASIC and conduct credit checks and financial analysis of all of our applicants, to avoid overborrowing and creating financial hardship.

Ready to Apply?

Personal Loan Details

Loan Amounts $5,000 – $15,000
Loan Terms 9 – 24 months
Starting Interest Rate (APR) 11.42% (Excellent Credit)
Starting Comparison Rate 14.49% (Excellent Credit)
Ceiling Interest Rate (APR) 21.24% (Average Credit)
Ceiling Comparison Rate 45.56% (Average Credit)
Type of rate Fixed Rate
Repayment options Weekly, Fortnightly, Monthly
Monthly Fee $0
Early repayment fee $0
Average turnaround 60 minutes*
Loan Options Unsecured & secured options

Credit criteria and terms and conditions apply. Representative example: based on a loan of $10,000 over 36 months a borrower with an excellent credit history can expect to pay a total of $12,389.76. WARNING: This comparison rate is valid only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Interest rates vary subject to a full credit assessment. This represents a comparison rate of 14.49% p.a. and includes all interest and fees included in your loan repayments over the life of your loan. For our personal loan product the APR starts from a minimum of 11.42% (14.49% comparison rate) with a maximum of 21.24% (45.56% comparison rate). The minimum loan term is 9 months and the maximum loan term is 24 months. For more details and examples visit our rates and fees page.