Payday Loans
A payday loan is a small loan which has to be paid back over a short period of time. The loan amount is usually between $100 and $2,000 and the loan terms are usually between 16 days and one year. They are technically called Small Amount Credit Contracts (“SACC”), and are subject to special rules.
Lenders can’t charge interest on payday loans, but they can charge a lot in fees. You will have to pay back a lot more than you borrowed. Use Moneysmart’s Payday loan calculator to work out the real cost of a short-term loan. In many cases there are other options which will cost you less, such as No Interest or Low Interest Loans.
Explanation of Fees on Payday Loans
| Establishment fee | Maximum fee is 20% of the amount borrowed |
| Monthly service fee | Maximum fee per month is 4% of the amount borrowed – this amount does not reduce with the balance like interest on normal loans |
| Government fee | Covers any government duties — most lenders don’t charge this |
| Dishonour or missed payment fee | Charged if you don’t have enough money in your bank account to make a scheduled repayment |
| Default fees | Charged if you don’t make a repayment by the due date — the maximum you can be charged for default fees is double the amount you borrowed |
| Enforcement expense | Charged if you default — to cover the cost of recovering the money you owe |
By law, payday lenders must lend responsibly. This means they can’t give you a loan if they think you won’t be able to repay it without causing you substantial financial hardship. From 2013, additional responsible lending laws apply to SACCs in particular.
These rules say that:
- Payday lenders cannot take security (eg. a car) for a payday loan
- Payday lenders must obtain and review 90 days of your bank account statements before granting you a loan to make sure you can afford the loan
- A payday lender has to think carefully about giving you a third payday loan in a 90-day period, or if you have already defaulted on an existing loan – the law says this means you are already in a debt trap and the lender must show this is not the case before giving you another loan
- Required repayments on a payday loan cannot be more than 20 per cent of income for consumers who receive half or more of their income from Centrelink
- A warning must be displayed (online and on premises) or given verbally over the telephone (if you are using your phone to borrow) to advise consumers of the high cost of small amount credit and possible alternatives.
If you think the lender did not act responsibly with your loan, you can get free legal advice.
