The problem with payday lenders
The big problem with loans from places like Cash Converters, Rapid Loans, Payday247, FairGo Finance and the like is that, when used other than as a one-off, they can make your financial situation much worse and definitely not better. Loans like this are sold as a quick, easy, one-off solution to temporary problems but unfortunately reliance and repeat borrowing is more the norm as people find just paying off these high interest loan often involves needing to borrow more.
And thats how the vicious cycle begins… and it’s a difficult one to get out of.
For example, a $600 payday loan typically requires a $744 repayment after 28 days. Don’t be surprised if you need to borrow again, to meet the shortfall created by the cost of the interest on the loan. That’s highly likely given such a high repayment and if you’re not on a high enough income to pay it.
Far from assisting people to overcome financial hardship, payday loans only perpetuate hardship.
We also have the same concerns about new services that offer easy credit like Afterpay. Here if you fail to pay on time you also will incur high interest. Find out what Choice thinks of the new kid on the block Afterpay HERE.
These quick and easy loans are dreadful for a number of reasons:
- Due to the very high interest rates, they are extremely expensive, compared to other forms of credit;
- Australians on low incomes or in financial stress are the main users;
- Payday loans are mostly used to pay for basic expenses like food, bills and car-related expenses;
- Payday loans usually get repaid before other essential expenses through direct debits; and
- The growth in online lending is making it quicker and easier to get the loans, without having to walk into a shop.
Interest free loans options
No Interest Loan Scheme
The most popular interest free loan in Australia is the No Interest Loan Scheme (NILS) which is designed for low income earners or those dealing with serious financial issues. This is not a loan designed for purchasing entertainment type of goods or services (vacations, flat screen TV, etc).
The NILS loan is designed to help Australians who need assistance with important household needs such as:
- White-goods such as a new stove, fridge, washer/dryer, computer, bed, etc
- Health related goods such as a wheelchair, asthma pump, walker, etc
- Car repairs for those who can prove the importance and reliance of a vehicle vs public transport
- Other unique circumstances related to the home and having minimal living standards met
What are the terms of an interest free loan?
To qualify for a no interest loan, you must meet the following minimal requirements:
- You must be on or qualify for Centrelink or the pensioner card.
- You must show that you can make the repayments within a 12 to 18 month period
- You need to be able to prove you have been living in the same residence for at least 3 months
- Different NILS offices may have slightly different approval criteria.
If you don’t meet the above requirements, there are other programs which you may qualify for. Whilst they may not offer zero interest, they have very low fixed rates with no fees like a StepUp loan (see below).
What is the process for applying?
If you meet the above criteria, you can borrow up to $1200 and in addition to now interest attached to the loan, there are no fees. To find your nearest NILS loan provider click HERE.
– Go through a quick interview process
– Your application/interview goes through assessment
– You are approved
– You receive payment
– You start making your low monthly repayments
A StepUp Loan is slightly different than NILS in that it has a low fixed interest rate attached to it but borrowers can receive a larger sum of money and there are no fees attached to it. Take a look at their latest brochure HERE.
Who can apply to StepUp?
This loan is also for individuals and families on a low income and that qualify for or are currently on Centrelink. Borrowers must have a Centrelink Concession Card or be receiving Family Tax Benefit Part A and be able to prove they have lived at the same home for at least 3 months.
How much can I borrow with StepUp?
With StepUp, borrowers can receive between $800 and $3000 dollars and the repayment period can be up to 3 years. As mentioned before, StepUp comes with a low fixed rate and no fees.
What can I purchase with the money?
These loans are designed to help borrowers purchase items that are important to the household or for everyday living.
You can use the loan to:
♦ Buy white-goods similar to those outlined in NILS.
♦ Purchase a used car
♦ Pay for repairs to your home –
♦ Buy essential items necessary for running a household (not for entertainment).
Find out more about StepUp HERE.
Low interest business loans
The NAB also have a great low interest loan programme for people on low incomes who wish to start their own business.
You can find out more HERE
Finally, If you are experiencing immediate financial difficulties because you can’t put food on the table or pay your electricity bill, you may be better off contacting Centrelink for an Advance Payment or calling a free financial counsellor on 1800 007 007 between 9:30am to 4.30pm, Monday to Friday.
The counsellors can even talk to your creditors (the organisation you owe money to) on your behalf.