People that make use of payday lending services are often caught in a debt cycle thanks to paying high fees. Before entering into a contract, it is important to know the facts and alternatives to payday loans.
Payday loans can be offered as a ‘short-term credit contract’. It is a loan repaid between 16 days to 1 year. You can borrow up to $2000.
Short-term credit contracts do not have an interest rate. Instead they have an establishment fee of up to 20% of the loan and an ongoing monthly fee of 4% of the balance owed.
A medium-term credit contract is another type of payday loan. You can borrow between $2000-$5000 and repays between 16 Days to 2 years.
Medium-term credit contracts can have an establishment fee of up to $400 and up to 48% interest each year.
Each contract comes with high fees, charges and interest rates which mean large repayments. This makes it easy to fall into debt.
What if I can’t make repayments?
If you are unable to pay your loan, you can contact the provider and request ‘financial hardship provisions’.
It is always best to seek help from a financial counselling service or legal service so they can explain ‘financial hardship provisions’ to you in more detail. They can also assess options and advocate for you. This will help you make the good decisions and manage your debt.
What can I do instead of taking out a payday loan?
If you are borrowing to pay bills, first speak to the company you owe about payment options and arrangements. Most of the time payment plans can be set up to assist.
You might also be eligible to access a Good Shepherd Microfinance NILS or Step Up loan which are great alternatives. If you are sure you want to access a payday loan, look for the lowest rates and fees (one example of this is ‘Speckle’).