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Personal Loans Tips

7 Risks of Payday Loans

Payday loans, also known as small-amount credit contracts (SACCs), are short-term loans intended to provide quick cash for unexpected expenses or emergencies.

While they can offer immediate relief, they come with significant risks and costs. Everyone should know the top 7 risks of payday loans in Australia.

What Are Payday Loans?

Post-dated check, cash advance, and payday loans all mean the same. You apply for a loan online and receive the money in your bank account quickly and easily with little documentation.

But what sounds like such a great opportunity comes with serious risks.

From high fees and interest rates to short repayment terms and high late fees, payday loans can become a ticket to financial hell if not managed carefully.

Why do many Australians take out payday loans?

Despite the high fees and risks of Payday loans, people still continue to take them out. The speed, convenience and lack of credit check make payday loans tempting.

Many Australians are unable to access credit cards or have been rejected for personal loans, forcing their hand if they need money urgently.

Why do many Australians take out payday loans_

Why Are Payday loans are costly?

Unlike personal loans, which are strictly legislated and have relatively low interest rates, payday loans have high setup fees and interest rates of up to 400% in extreme cases.

If you use a Payday Loan to borrow $300, you may have to pay an establishment fee of $40 to get it. Your total loan is $340, but you will only receive $300. You may also have to pay interest on top of this. If the loan period is 16 days, you will have to pay $340 + any interest when the period ends. But, if you miss your payment, you have to pay additional late fees.

As the example above shows, what started as a need for quick cash can soon become costly.

If you manage the loan carefully, you can walk away having paid high interest and fees and be done with it. But if you’re not careful and you find yourself over-committed, you can find yourself trapped in a debt cycle.

The 7 Key Risks of Payday Loans

1. Payday Loan Debt Multiplies Fast

One of the biggest risks of Payday Loans is that they often come with hidden or misleading fee structures. If you don’t pay off the debt quickly, you can soon find yourself paying up to 10 times the initial loan amount.

2. Payday Loans are Easy to get but Difficult to Pay

Even if you make payday loan repayments on time, the fees and interest rates are already high, making them difficult to manage.

If you leave your debt unpaid for longer than initially outlined, you may wake up one day owing more than you are able to repay. This can start to have a domino effect on the other important things in your life.

As the payday loan debt continues to increase, it will be more difficult to keep on top of your other debts, bills and living expenses. In some cases, it can get to a point where your debts are higher than your income, and then you face a real problem.

Some payday lenders also have terrible debt collection policies like harassment, threat of litigation and other forms of provocation.

Payday Loans have High Interest Rates and Fees

3. Payday Loans have High Interest Rates and Fees

One of the most critical aspects of payday loans is their high interest rates and fees. In Australia, lenders are regulated, but the costs can still be substantial. Lenders are allowed to charge a maximum establishment fee of 20% of the loan amount and a monthly fee of up to 4%.

For example, if you borrow $500, you could be charged a $100 establishment fee and $20 per month, resulting in an effective annual percentage rate (APR) that can exceed 200%. These high costs make payday loans an expensive form of credit.

4. Payday Loans have Short Repayment Terms

Payday loans in Australia are designed to be repaid quickly, typically within 16 days to 1 year. This short repayment term can be challenging for many borrowers.

If you’re already living paycheck to paycheck, coming up with the loan amount plus fees in such a short time frame can be difficult. This often leads to borrowers rolling over their loans or taking out new loans to cover the old ones, leading to a cycle of debt that’s hard to escape.

5. Payday Loans have a High Potential for Debt Cycles

Due to the high costs and short repayment periods, many payday loan borrowers in Australia find themselves trapped in a cycle of debt. Statistics show that many people who take out payday loans do so repeatedly.

The Australian Securities and Investments Commission (ASIC) reports that many payday loan borrowers take out multiple loans each year, which indicates that they are unable to repay their loans and must continue borrowing. This can lead to a cycle that can be difficult to break and can cause long-term financial instability.

6. The Impact of a Payday Loan on your Credit Score

One of the lesser-known risks of payday loans is their impact on your credit score. Most payday lenders in Australia report to the major credit bureaus, meaning taking out a payday loan and making timely repayments could help build your credit score.

However, defaulting on a payday loan will negatively impact your credit score, making it harder to obtain credit in the future. Therefore, while payday loans can have a minimal positive impact, the risk of default makes them a precarious option.

7. Payday Loans Regulation and Legal Status

In Australia, payday loans are regulated by the National Consumer Credit Protection Act 2009 (NCCP Act) and overseen by ASIC. Lenders must comply with strict rules designed to protect consumers, including caps on fees and interest rates.

Additionally, if you default, the maximum amount of recoverable fees is twice the loan amount. Furthermore, payday lenders must conduct thorough assessments of a borrower’s financial situation to ensure they can repay the loan without experiencing substantial hardship.

Should you get a Payday Loan?

Payday loans can quickly solve immediate financial needs but come with significant risks and costs. High interest rates, short repayment terms, and the potential for debt cycles make them a last resort rather than a go-to option.

Understanding these facts can help you make more informed financial decisions and explore alternative options, such as personal loans, borrowing from friends or family, or taking advantage of debt support programs. Always weigh the pros and cons carefully before opting for a payday loan to avoid falling into a debt trap.

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Short Term Loans

The Ultimate Guide To Short Term, No Credit Check Loans

Taking out a loan can be a very long process. It is dependent on a number of factors, including what type of loan you need, your credit history, and the institution you choose to take the loan with. But sometimes, we need a quick cash injection to give our personal or business life that little boost it needs, and we don’t want to be waiting around for the long, drawn-out process of taking out a loan and miss out on opportunities in the process. This is where a short term no credit check loans can be very helpful.

What Is A Short Term Loan?

As the name suggests, these are loans that are taken out in the short term. Normally, they are expected to be paid back within the year. These type of loans are commonly taken out by business start-ups, who don’t yet qualify for a credit line from the bank, yet need a quick cash injection to get them up and running.

Types Of Short Term Loans

There are different types of short term loans that can be used for a number of different purposes depending on your individual circumstances.

Merchant Cash Advances

This type of loan is actually a cash advance, but it works in the same way as a short term loan. You can borrow a certain amount from the lender and then make the payments back to them by allowing them access to your credit facility. A certain percentage of each business transaction you make is taken back until you pay back your loan.

Line Of Credit

This is similar to using a business credit card. A limit is set, and you can use that credit as needed. You then have to make monthly instalment payments against the amount you have borrowed, so these will vary from month to month.

Payday Loans

These loans are usually given for emergency situations and can be fairly easy to obtain. Unlike the other loans we have looked at, they generally have to be paid back in one lump sum on your next payday.

Online Loans

Once again, as the name suggests these loans are carried out online. You can access a short term loan with a number of finance providers, with everything from application to approval done online with money wired into your account instantly.

Why Take Out A Short Term Loan?

There are a number of different reasons you may want to take out a short term loan.

Consider the following scenarios:

You have just started up a new business and need an initial cash injection to hire some employees to get things up and running. You have approached a bank, but they aren’t interested in helping you as you have no credit history and are considered a risk. If you’re looking to get back on your feet, the consider a short term loan. Short term loans can provide the foundation for taking out a long term loan down the track.

You need some money to fix your car after you have been in an accident. You need that money fast, as you rely on your car every day for work. Instead of waiting for approval from the bank, you can go down the route of a short term loan, get the cash as soon as you need it and get back on the road faster.

There are also plenty of benefits that come with short term loans

Less Interest

With a short term loan, you can expect to pay less interest. Pay them off quickly as the time frame is usually shorter. This doesn’t allow time for interest to build.

Instant Money

Given the fact that there is a lot less risk for lenders when it comes to short term loans, the process is a lot shorter and you can have the money with you even faster.

Easier To Get

Credit scores don’t factor in when it comes to obtaining a short term loan, which makes these loans even easier to get. The requirements are lower, which make them a lifesaver for many businesses.

Benefits Of Short-Term No Credit Check Loans?

Firstly, credit checks take time, which is one of the reasons the loan process can be fairly drawn out. Also, if you have a bad credit history, there is also the likelihood you won’t be approved for a loan with many financial institutions. Getting short term loans with no credit check sidesteps this and allows you to get the money you need when you need it, and without the hassle.

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Short Term Loans

Cash Advance With Payday Loans

Cash advance payday loans may look like a great option, but there is a downside. Your bills may be piling up, you may need to pay your car rego, fix a car, or pay for a medical bill, but you haven’t been paid yet? A payday loan seems like a simple solution.

If you are in dire need of quick cash, there are options available. One such option is cash advance with payday loans.

What are Cash advance payday loans?

Cash advance payday loans are high-cost short term loans that offer quick and convenient access to cash. If you are in need of cash to pay for upcoming bills; then a cash advance can help you get sorted fast.

Whilst some people may see payday loans as their quick fix to financial stability, there are however opposing views. Here are some of the advantages and disadvantages associated with cash advance, payday loans.  Take a good look at these and weigh if a payday loan is good or bad for your financial health.

Advantages of cash advance payday loans

  • Fast approval
  • Loans are available even for a high-risk borrower
  • Pay for emergency situations fast. Did your car break down? Is there an emergency field trip in your child’s school? Or, are you taking advantage of the big discount on equipment for your business? Use it any way you like it, cash advance payday loans can save the day.

As long as you can assure the lender that you can repay, you can get the money you need fast and you don’t have to worry about receiving notices that your utilities will be cut off because you missed the payment.

Disadvantages of payday loans

Payday loans usually come with very high-interest rates. These rates can come in the form of a flat fee or a certain percentage of the cash advance payday loans. For example, a cash advance lender may charge 20% per $100 borrowed. This means that the borrower has to pay $20 in interest on a monthly basis. If you missed a payment on the first month, the interest will accumulate and you’ll be paying more than your original debt as the time goes on and the debt remains unpaid. 20% may not be a big deal if you will pay it outright when you receive your pay for the month. But, if you took a loan 7 days before your payday, you will be paying a large fee for a 7-day loan.

If you’re borrowing against your salary, where will you get money to pay for your expenses before the next payday? It can lead to another debt until you can’t get out of it anymore.

Is cash advance loan a good idea?

A person has too much debt when he owes more than what he can afford to pay, simply because his income is lower than his debt, and his liabilities are greater than his assets. If you’re struggling with debt, another debt can either help you get out of it, or drag you deeper into debt. It is a choice you have to make, especially in the way you will use your money.

Better alternative to payday loans

When you need money for emergency use, you can turn to Australian Lending Centre for short term loans, which are a safer solution than payday loans. Whether you are going to use the money for business or personal matters, short term loans are easy and quick solutions that you can count on. You can get approved in a few hours and get the money faster than banks do.

Pay for personal or business expenses, invest and grow your money, by using Australian Lending Centre short term loans. It is a better option than cash advance payday loans. Contact the experts of Australian Lending Centre today.

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Short Term Loans

Ads for Short Term Loans Banned on Google

According to recent settlements, Google have banned ads for Short Term Loans. The decision was triggered by the concern that these ads have a specific predatory nature. On that account, it has been established that the search engine will ban ads featuring loans for which the repayment is required within 60 days after the date of issue. But what is it that makes these loans far from the ideal choice for the Australian borrower?

The truth about short term loans

These short term loans stand under the question mark as they come with significant amounts of interest and are causing people to sink much deeper into debt. Consumer Action Law Centre has gladly received this establishment. However, there has been a range of inquiries regarding the way in which the mechanism will function.

For starters, Google has included an additional ban in the US for loans that are linked to an annualised percent that surpasses 36. However, after having agreed on that for the US the same mechanism was suggested to Jason Pellegrino, CEO of Google Australia. According to his affirmation, the same initiative that firstly emerged in the US will be extended to Australia as well, meaning that short term loans that have an annualised interest percent over 48. That initiative is expected to balance payday loans with the financial products from our country.

As made official by Google, this ban has come into force on the 13th of June, which has been the first time Google has taken the initiative by announcing a global ban for a broad range of financial products.

These short term loans, in line with the research conducted in this direction, indicate that, in most situations, they result in high default rates and unaffordable payment for users. The primary purpose is to protect each user from deceptive financial products and offers. Without fear of contradiction, this move won’t affect reliable and reputable banks and non bank lenders, such as the Australian Lending Centre, which provides a great variety of bad credit loans, debt consolidation loans, car loans, and etcetera.

The main reason people are lured into taking up payday loans is that they are presented to them in an attractive manner, similar to a quick, efficient fix to a complicated problem. As many people who are trying to make ends meet will assume that such a loan will put an end to their problems, they somehow fail to acknowledge that these loans are linked to high fees and charges, which will further get one in a vicious cycle of debt he/she cannot escape.

That’s why we recommend people who are in a difficult financial situation to steer clear of these payday loans, and opt for the guidance of a professional financial counsellor.