Payday Lenders & Small amount loans
Due to the ease of the internet, small amount loans or payday loans, as they are commonly known, are becoming increasingly more common.
The term “payday loans” refers to small value loans of a couple of thousand dollars or less, often used to cover household expenses. These loans are typically provided by non-traditional lenders and can be approved and transferred to the borrower quickly. These lenders are increasingly marketing toward a younger market, emphasising the ease of approval and quickness of the fund transfer.
Although these loans might sound appealing when you are short on money, they are subject to high-interest rates and short repayment periods which can lead to greater financial problems down the road.
How do they work?
Many payday lenders now operate online allowing your loan application to be assessed quickly and if approved for the cash to be quickly transferred money again through the net.
Be wary of fast cash. Payday loans are subject to high interest rates, expensive establishment fees and short repayment periods, sometimes as little as 16 days and these lenders often charge expensive payment dishonour fees and daily fees for late payers.
What are the dangers?
Due to their high interest rates and hidden fees, these loans can quickly spiral out of control for the borrower. Even if a borrower pays the loan off in the designated period of time, they generally wind up paying total fees and interest of 24 per cent, making the loan costly and not worthwhile.
However if you fail to repay the lender in time, these loans can become even more costly and damaging due to dishonour and late fees, as well as compounding interest. This has led some borrowers to enter a "debt spiral" where they take on multiple loans to help them meet other debt repayments.
Defaulting on these loans or failing to repay them can lead to an impaired credit file. This may have a significant impact your ability to be approved for more sizable loans such as mortgages or car loans. So an impulsive decision to get a payday loan can lead to you not being able to take out a home loan further down the road, a decision you may come to regret.
What are the alternatives?
The first thing to consider is whether you really need the money immediately or not. If the loan is for a frivolous purchase or for something that can be bought at a later date, you should wait until you can afford it yourself. Otherwise this purchase will wind up being far more costly than it otherwise should have been.
If the money is for an emergency and you really do need it urgently, there may be alternatives for you to consider. For example you could borrow money from friends or family, ask for an advance from your work, work overtime or sell unwanted household items.
Payday loans or small-amount loans are rarely the best option available. Whilst they may be quick and easy, they end up being costly and potentially damaging to your financial future.
Fox Symes is the largest provider of debt solutions to individuals and businesses in Australia. Fox Symes helps over 100,000 Australians each year resolve their debt and take financial control.
If you are in debt and want to know more about the solutions available to you contact us on 1300 098 127 or fill out the short contact form.