Alternatives to payday loans


The payday loan industry is booming in Australia, and it is pushing thousands of Aussies into a debt trap. And it’s just not here. An increasing number of people around the world rely on these unsecured loans as a quick fix when they need extra cash, despite repeated warnings from regulators about the dangers of payday loans.

Certainly, payday loans are useful options for dealing with urgent needs, especially if you have been turned down by traditional lenders because you have low income or do not meet their specific requirements. Payday lenders are notorious for accepting applications from clients with bad credit history or low credit scores, which makes these loans readily available to the majority of Australians. The very short loan terms offered by these lenders often mislead consumers into believing that this will be something they won’t have to worry about in a few weeks or so.

Payday loans are convenient, but this ease of borrowing comes at a high price.

Like anything that sounds too good to be true, payday loans have a problem. They charge high interest rates which means you could end up paying a lot more than what you borrowed more than with any other type of loan.

Payday loans have been known to trap borrowers in a never-ending repayment process that damages their credit history. You could face costly penalties if you miss your repayments.

A payday loan can hurt your credit rating if you are behind on repayments or default on the loan, which could affect your requests for other lines of credit in the future.

So, before you start to apply for a payday loan, you should know what options you can consider when you need a quick financial solution.

What are your other loan options?

If you have an urgent need to borrow money to pay a bill, pay your creditors, or for other emergency expenses, there are better options than supporting the seemingly predatory payday lending industry.

Depending on your personal situation and the amount you need to borrow, there are alternatives to visiting a payday lender. Not all of these options will work for you, but they are considered cheaper borrowing options that won’t put you in a vulnerable position like with a payday loan.

  • Interest-free loan – An interest-free loan or NIL allows you to borrow up to $ 1,500 to pay for essentials. Repayments are affordable and the loan term is between 12 and 18 months. There is no credit check and you will not be required to pay any interest charges or fees. In other words, you will only repay what you have borrowed. These loans are available from some banks for low income households to cover agreed services including medical care or training.
  • Low interest loan – If you can afford to pay a little interest, you may want to consider taking out a StepUP low interest loan. People who have difficulty borrowing from banks are eligible for this loan, which allows them to borrow between $ 800 and $ 3,000. It has a fixed interest rate and can be repaid in up to three years, with weekly, bi-monthly or monthly repayments. Like NILs, no fees are charged.
  • Centrelink advance payment – You can request a lump sum payment in advance of most Centrelink benefits. If approved, you may receive part of your benefit as a lump sum. However, you must later repay the amount. This is useful if you need a large amount at fixed times throughout the year rather than getting a regular income. The length of the loan can vary, but most payments must be repaid within six months. The amount you can borrow depends on the type of Centrelink payment you receive, but it is usually limited to the amount you are able to repay within the time limit. The best thing about this loan is that no fees or interest rates are charged. You will need to provide proof that you can repay the money without experiencing financial hardship, so prepare your proof of income and details of expenses and debts. If you would like to apply, you can visit the Services Australia website.
  • Non-compliant loan – Due to our different personal circumstances, not all of us fit into traditional loan categories. If your financial situation makes it difficult to get a seal of approval for a loan from a bank or credit union, a non-compliant loan or non-bank loan may be the way to get the money. which you need. You will still need to be assessed before your loan is approved. But on the bright side, maverick lenders tend to take a different approach to borrowers and are seen to be more attentive to your situation. These loans usually have higher interest than your regular loan, but still have a lower interest rate than payday loans. You can also borrow a larger amount than conventional loans.
  • Debt Consolidation Loan – Do you have trouble repaying several loans? You can combine your debt (including credit card debt and other payments) into one consolidation loan with a more affordable monthly payment. The interest on a debt consolidation loan will be significantly lower than on payday loans, making the monthly payments more manageable. You also have a longer repayment period, typically 12 to 84 months, rather than within two weeks. Unlike payday loans, these types of loans are regulated, which means that a good repayment history will help you improve your credit score over time.

What are your other practical alternatives to payday loans?

Let’s say you don’t want to go through the mentioned loan application process. Maybe you find it too tedious, or you just don’t have the patience to wait for approval. Here are some other handy options you can try to get cash fast:

A deposit on labor

Some companies offer financial packages or loans to their employees to help them get through difficult financial times. You can request a deposit if your organization offers such a service. Otherwise, you can talk to your boss and explain your situation.

Tap into your savings or emergency fund

If you’ve saved up money for an emergency, you can use your savings instead of taking out a payday loan. Remember to only use it if it is truly an emergency. Try to replenish your emergency fund as soon as you can.

Help from your family or friend

While it can be difficult (and sometimes embarrassing) to ask your family, friends, or even coworkers for financial help, it can be your best option for dealing with financial emergencies. The people closest to you are likely to be the ones who understand your financial situation the best and are more attentive to helping you. Be honest about why you need the money. Make a repayment plan before you borrow and stick to it.

While this may seem like a last resort, it is still a better solution than falling into the payday loan debt trap. If you choose to do so, be diligent in paying them to avoid putting your relationship at risk.

Negotiate with your utility provider or creditor

Don’t be intimidated by the idea of ​​negotiating with your creditor or utility provider if you’re having trouble paying your bills or debts. In most cases, they will understand if you are in financial trouble. If you have a temporary cash flow problem and can’t pay your rent for the month, try talking to your landlord. If you know you can’t pay your electric bill, contact your creditor. Ask if they are willing to extend your due date or you can come to an agreement on a more lenient payment plan. You will never know until you try.

Learn more about loan options and repayment strategies on our website. Explore Nestegg today!

Alternatives to payday loans

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Last updated: December 08, 2020

Posted: 08 December 2020


About Brandon A. Hood

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