What if I can’t pay my loan back? How much is the interest? What will I be charged? These are common questions for first-time payday borrowers who need to borrow money fast, and if you’re feeling the pinch now that JobKeeper has ended, you might be tempted to sign up for one!
However, when it comes to payday lending, there are often hidden fees on payday loans in the fine print which the salesperson on the other end of the line might conveniently fail to mention! Don’t be taken for a fool by the ease of signing up for a payday loan this April – otherwise, you might end up with a ridiculous bill – and that’s no laughing matter!
Payday Loans Australia
Payday loans are short-term, high-interest, unsecured loans. Many payday loans don’t require a credit check if the amount of money loaned is under a certain amount, and because of this, unchecked borrowers are considered higher risk, which explains why payday loan interest rates are usually so high! The irony of payday loans is that those who sign up for them often need the money desperately, however, by signing up they end up in a worse financial position. It’s an unfortunate case of being damned if you do, and damned if you don’t!
What are the Hidden Fees on Payday Loans?
Aside from interest, there are many different types of hidden costs that payday lenders often charge, which can add up to a lot of money lost over the course of the loan! Talk about a sleight of hand! These fees include:
- Establishment Fees – payday lenders in Australia can charge up to 20% of the amount borrowed - up front!
- Monthly Fees – an ongoing fee for every month that the loan account is open. The maximum monthly service fee lenders can charge is 4% of the total amount borrowed.
- Dishonour Fees – this type of fee will be charged to the loan account if there are insufficient funds to pay a direct debit repayment. This may be charged by the lender or direct debit service provider.
- Default Fees – these are incurred if repayments are not made by the due date. The maximum value of default fees which can be charged to borrowers cannot exceed double the total amount originally borrowed.
- Government Fees – whilst most lenders don’t charge this to consumers, this type of fee covers any government duties over the loan.
- Legal/Enforcement Fees – if the lender takes legal action to recover the monies owed, the costs incurred by the lender for filing a legal action and enforcing the recovery of the debt can be court-ordered to be repaid by the borrower.
- Administration Fees – may be charged by the lender for time taken to service customer queries, such as taking telephone calls or posting out statements.
What are the Indirect Costs of Payday Loans?
Being stuck in a tricky financial position is hard enough without having to play the repayment game! The on-flow effects of being unable to pay back these loans often have the worst impacts:
- Mental Health – the connection between mental health and financial stress is a two-way street –one can cause the other.
- Work Performance – financial stress causes work productivity to plummet as a result of having to deal with finance-related matters during work hours or taking sick days to deal with the finances or the stress. Reduced performance can then threaten a person’s employment due to reduced work hours, opportunities and even being fired, which compounds the problem further.
- Relationship Struggles – arguments about money are an unfortunately common cause of relationship breakdown.
- Physical Health – it is an established fact that mental stress can lead to physical stress. Being unable to pay debt can also have an even worse effect on a person’s physical health if they require medical treatment but cannot afford it.
Bad Credit Payday Loans
If you already have an impaired credit rating, you might come across advertisements for bad credit payday loans that claim they will still approve your loan with a fast, easy online application. Quite often bad credit payday loans will offer features such as a fixed cost of borrowing, flexible repayment period and scheduled repayment dates - however, it’s still super important to understand the hidden fees. Before you sign up for any payday loan, it’s important to ask for a schedule of fees, terms and conditions, or the fine print so that you can read through the contract and fully understand the implications of signing up for the loan.
As hard as it can be to face a bad debt situation, it’s always better to address high-interest payday loans as soon as possible so that you can get on top of the interest before it gets out of control. Call us on 1300 003 328 for a confidential, obligation-free chat to find out your options, and our debt negotiators will be able to help you find a solution to get out of debt, and looking forward to a debt-free life.