The payday loan industry is booming in Australia and pushing thousands of Australians into a debt trap. And it’s just not here. A growing number of people around the world rely on these unsecured loans as a quick fix when they need extra cash, despite repeated warnings from regulators about the dangers of payday loans.
Certainly, payday loans are useful options for meeting urgent needs, especially if you have been refused by traditional lenders because you have low income or do not meet their specific requirements. Payday lenders are notorious for accepting applications from customers with bad credit histories or low credit scores, making these loans readily available to the majority of Australians. The very short loan terms offered by these lenders often mislead consumers into thinking that this will be something they won’t have to worry about in a few weeks.
Payday loans are convenient, but this borrowing facility comes at a steep price.
Like anything that sounds too good to be true, payday loans have a catch. They charge high interest rates, which means you could end up paying a lot more than you borrowed more than with any other type of loan.
Payday loans are notorious for trapping borrowers in a never-ending repayment process that damages their credit history. You could face costly penalties if you miss your repayments.
A payday loan can negatively affect your credit score if you fall behind on your repayments or fail to repay the loan, which could affect your applications for other lines of credit in the future .
So, before you start applying for a payday loan, you need to know what options you can consider when you need a quick financial fix.
What are your other loan options?
If you urgently need to borrow money to pay a bill, pay your creditors, or for other emergency expenses, there are better options than supporting the seemingly predatory payday loan industry.
Depending on your personal situation and the amount you need to borrow, there are alternatives to visiting a payday lender. Not all of these options will work for you, but they are considered cheaper borrowing options that won’t put you in a vulnerable position like with a payday loan.
- interest free loan – An interest-free or NIL loan allows you to borrow up to $1,500 to pay for essentials. Repayments are affordable and the loan term is between 12 and 18 months. There is no credit check and you will not be required to pay any interest charges or fees. Simply put, you will only pay back what you borrowed. These loans are available from some banks for low-income households to cover agreed services, including medical care or training.
- Low interest loan – If you can afford to pay a little interest, you can consider taking out a low interest StepUP loan. People who have difficulty borrowing from banks are eligible for this loan, which allows them to borrow between $800 and $3,000. It has a fixed interest rate and can be repaid in up to three years, with weekly, fortnightly or monthly repayments. Like NILs, no fees are charged.
- Centrelink Prepayment – You can request a lump sum payment in advance to most Centrelink benefits. If approved, you may receive part of your benefit as a lump sum. However, you will have to repay the amount later. This is useful if you need a large amount at fixed times throughout the year rather than getting regular income. The term of the loan can vary, but most payments must be repaid within six months. The amount you can borrow will depend on the type of Centrelink payment you receive, but is generally limited to the amount you are able to repay within the time limit. The best thing about this loan is that no fees and interest rates are charged. You will need to provide proof that you can repay the money without experiencing financial hardship, so have your proof of income and details of expenses and liabilities ready. If you wish to apply, you can visit the Services Australia website.
- Non-compliant loan – Due to our different personal circumstances, not all of us fit into traditional lending categories. If your financial situation is preventing you from getting approved for a loan from a bank or credit union, a non-conforming loan or non-bank loan may be the way to get the money you need. need. You will still need to be assessed before your loan is approved. But on the bright side, non-conforming lenders tend to have a different approach to borrowers and are perceived to be more attentive to your situation. These loans usually have higher interest than your regular loan, but still have a lower interest rate than payday loans. You can also borrow a higher amount than conventional loans.
- debt consolidation loan – Do you have trouble repaying several loans? You can combine your debts (including credit card debt and other payments) into one consolidation loan with a more affordable monthly payment. The interest on a debt consolidation loan will be significantly lower than on payday loans, making monthly payments more manageable. You also have a longer time to pay it back, usually 12 to 84 months, rather than within two weeks. Unlike a payday loan, these types of loans are regulated, which means having a good repayment history will help improve your credit score over time.
What are your other practical alternatives to payday loans?
Let’s say you don’t want to go through the application process of the mentioned loans. Maybe you find it too tedious or just don’t have the patience to wait for approval. Here are some other handy options you can try to get some quick cash:
An advance on work
Some companies offer financial packages or loans to their employees to help them through difficult financial times. You can request an advance payment if your organization offers such a service. Otherwise, you can talk to your boss and explain your situation.
Dip into your savings or emergency fund
If you’ve saved money for an emergency, you can use your savings instead of taking out a payday loan. Remember to only use it if it really is an emergency. Try to replenish your emergency fund as soon as you can.
Help from your family or friend
While it can be difficult (and sometimes embarrassing) to ask family, friends, or even co-workers for financial help, it may be your best option for dealing with financial emergencies. The people closest to you are likely to be the ones who understand your financial situation the most and are most willing to help you. Be honest about why you need the money. Establish a repayment plan before borrowing and follow through.
Although it may seem like a last resort, it is still a better solution than falling into the debt trap of payday loans. If you choose to do so, be diligent about paying them to avoid putting your relationship at risk.
Negotiate with your utility provider or creditor
Don’t be intimidated by the idea of negotiating with your creditor or utility provider if you have a problem paying your bills or paying your debts. In most cases, they will understand if you are in financial trouble. If you have a temporary cash flow problem and can’t pay your rent for the month, try talking to your landlord. If you know you can’t pay your electricity bill, contact your creditor. Ask them if they’re willing to extend your due date or you can come to an agreement on a more lenient payment plan. You will never know until you try.
Learn more about loan options and repayment strategies on our website. Explore nestegg today!