Payday Loans: What They Are & Why We're Different

We’re sure you’ve probably seen the TV commercials, the radio ads and the “get cash now” catchphrases from a number of payday loan lenders throughout Australia.

We’re also sure you’re aware that the payday loan industry has maintained a lower-than-average reputation (for reasons we will explain later below).

And this negative reputation, unfortunately, carries over and affects responsible lenders who, although they also offer small loans up to $2,000, ensure their product’s features and benefits set them well apart.

Let’s explore what payday loans are defined as, why they have attracted the negative reputation they have, and how Fair Go Finance is different.

What is a Payday Loan?

A payday loan is a small personal loan of up to $2,000 that is repaid between 16 days and 1 year. It was given the name “payday” as many people would use this type of small loan to survive until their next paycheck.

Under Australian law, there’s a fee cap on payday loans which is 24% per $100 borrowed.

This is made up of a 20% establishment fee and a 4% monthly fee. For example, for a $2,000 loan, that’s a maximum $400 establishment fee and a maximum $80 monthly fee.

Why Are Payday Loans Expensive?

Reason 1: The Fees and Lack of Recognition for Good Repayment Conduct

Certain Payday loan providers choose to charge the maximum fees (mentioned earlier) regardless of the customer’s financial situation and risk profile.

And if a customer ever returns to them, they still charge them the maximum fees, disregarding their loyalty, previous loan conduct and whether their credit score has improved.

Reason 2: The Late Fees

If repayments are missed, payday loans will generally charge late fees which can add up.

Some are known to charge $7 a day whilst they wait for you to make a repayment and this can make a $400 loan quickly add up, so it’s important to do your research and find out what fees a lender charges before you proceed with a loan.

Reason 3: There are Different Borrowing Rules

Payday loan providers may use different criteria than the major banks, and may not choose to uphold responsible lending. Some may not do the necessary checks to ensure the loan is affordable because they are most interested in making a quick buck from you.

A responsible small loan lender will ensure they understand your financial position and ensure your loan is set up so you can successfully repay it.

Can Payday Loans Hurt Your Credit?

When you apply for most payday loans (or generally any loan or credit product) your credit file will be updated with a credit enquiry. If you have too many credit enquiries on your file, especially if you’ve applied for a few in a short period of time, this can negatively affect your ability to borrow.

And because of the way some payday loans are structured, they become expensive and hard to walk away from. It’s not uncommon for people to need to take out further payday loans to pay off other payday loans, and this cycle can lead to a lot of marks on your credit file.

Do You Need a Payday Loan?

We understand everyone may face the sudden need for funds urgently, so it’s important to do your research for a responsible provider.

Pro’s of a Responsible Payday Loan:

• Quick cash on affordable terms

• The application form is usually online and easy to access/complete.

• You can receive tailored pricing applicable to your credit profile

• You can be rewarded for your loyalty and be incentivised to improve your creditworthiness

Con’s of an Irresponsible Payday Loan:

• Maximum fees charges regardless of your credit profile

• They may not consider your financial situation, which could worsen your financial position.

• They may make the repayment term very short, so it is harder to repay.

The key is to borrow from a responsible lender whose loans can set you up for success.

How is Fair Go Finance a responsible small loan lender?

Here at Fair Go Finance, we take the time to ensure you’re given a loan you can afford.

No Hidden Fees

When you get a Fair Go Finance loan, you won’t be surprised with hidden expenses or ridiculous late fees. You see the cost of your loan as you apply, so you know exactly how much it will cost.

Pay It Back Over a Longer Period

Most payday lenders sign you up to a payback period that is too short. This can lead you into being trapped in a cycle of debt, or with repayments that actually aren’t affordable.

When you borrow with Fair Go Finance, enjoy longer payment periods. This allows your weekly repayments to be manageable so you can financially get ahead.

Be Rewarded with Tiered Fees

We offer tiered fees aligned with your unique credit profile. The better your credit score, the lower your fees.

But let’s say you first approach us with a below-average credit score. This may mean that to begin with, you pay higher establishment and monthly fees.

However, as you successfully repay the loan, you are able to actively boost your credit score due to our adoption of Comprehensive Credit Reporting, and this means your improved score can then help reduce your fees on any future loans you may have.

This approach allows our customers to go forward financially and save hundreds of dollars in fees.

We Only Give Affordable Loans

Our aim is to give everyone a fair go, we genuinely want every single one of our customers to improve their financial position. We’ll assess your financial situation thoroughly because we don’t want to give you a loan that will set you up for failure. You deserve to see financial success.

This combination of tiered fees, and our approach to ensuring you have an affordable loan that will boost your credit score once repaid, will leave you in a much better position than other payday lenders can offer.

Let’s answer some other common questions about payday loans.

FAQ 1: How do I Consolidate my Payday Loans?

This situation is very common. Some payday loans are structured in a way that can cause people to become stuck in a cycle of debt.

A possible solution to get back on track is to consolidate all of your payday loans.

The idea of consolidating your debt is to improve your cash flow by combining all of your debts into one. This takes some pressure off by making your budget simpler and your debt more manageable.

To do this, look into a debt consolidation loan that has fixed interest rates (like ours). This way, you know exactly what your repayments will be, and you won’t have any hidden fees.

FAQ 2: What Happens if You are Late on a Payday Loan?

If you can’t afford the repayment on your payday loan at that time, you will more than likely be charged late fees.

These late fees are allowed to cost up to twice the amount of your loan. Missing payments is very expensive so try and always make your repayments when they are due.

FAQ 3: So is Fair Go Finance a Payday Loan Provider or not?

Fair Go Finance is different to other payday loan providers. Yes, we do offer small loans up to $2,000 (which is the general definition of a payday loan) but we offer longer payback periods, we’re transparent with our costs and we reward our customers with tiered fees.

Let’s Summarise Payday Loans

A payday loan is a small loan designed to help you with funds quickly.

Not all payday loans are responsible however and may leave you in a worse financial position.

Instead, if you need a small loan, look for a responsible lender who is upfront about all fees, has tiered fees so customers can save money, and will work to ensure your loan is affordable.

If you feel like you’re stuck in a cycle of payday loans, debt consolidation is a great way to break the cycle. With a debt consolidation loan, you can pay back the payday loans and focus on one simple loan repayment.

When you’re considering a loan, you should always ensure the lender you’re borrowing from is responsible and has your interest at heart. With the right lender, you can see financial success.

If you’re looking for a small loan up to $2,000, use Fair Go Finance. We offer affordable loans, our fees aren’t hidden, and our goal is to set you up for success.