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Payday loans

Need to borrow money fast? A payday loan isn't the cheapest option

Page reading time: 4 minutes

A payday loan, also called a small amount loan, lets you borrow up to $2,000. You have between 16 days and one year to pay it back.

While it might look like a quick fix, a payday loan has a lot of fees. For example, to pay back a $2,000 payday loan over one year, your total repayments will be about $3,360. That's $1,360 more than you borrowed.

There are cheaper ways to borrow money when you need it.

If you're getting a payday loan to pay off another loan, talk to a financial counsellor. It's free and confidential.

Cheaper ways to get money fast

If you need to get money fast, these options are cheaper than a payday loan.

No interest loan

See no interest loans for how to get one.

Loans without interest: apply for a Household Relief Loan to pay for rent and utilities if you've been financially impacted by COVID-19. Loans are for up to $3,000, have no interest or fees and are repayable over 24 months. 

Low interest loan

See StepUP low interest loans for how to get one.

Centrelink advance payment

You can apply for an advance payment through the Service Australia's website.

Help paying your bills and fines

If you're struggling to pay your bills, don't get a payday loan. Talk to your service provider straight away. They can help you work out a plan to pay bills or fines in installments.

The government and some community organisations offer rebates and vouchers that can help you pay utility or phone bills.

See problems paying your bills and fines to find out more.

If you're struggling to make ends meet, see urgent money help. There are free services that can help you.

The cost of payday loans

Lenders can't charge interest on payday loans, but they can charge a lot in fees. You will have to pay back a lot more than you borrowed.

Most payday lenders charge an establishment fee of 20% of the amount borrowed and a monthly service fee of 4% of the amount borrowed. For a $2,000 loan, that's a $400 establishment fee and $80 per month for the service fee.

ASIC has issued an order to stop lenders like Cigno from charging two lots of fees.

Under the model used, Cigno customers were signed up to a payday loan and its associate charged extra fees under a separate contract.

Fees on payday loans

Under the law, there's a cap on most payday loan fees. If you're charged more than the maximum fee, get free legal advice on how to get your money back.

Payday lenders can only charge you these fees:

Establishment fee

  • maximum fee is 20% of the amount borrowed

Monthly service fee

  • maximum fee per month is 4% of the amount borrowed

Government fee

  • covers any government duties — most lenders don't charge this

Dishonour or missed payment fee

  • charged if you don't have enough money in your bank account to make a scheduled repayment

Default fees

  • charged if you don't make a repayment by the due date — the maximum you can be charged for default fees is double the amount you borrowed

Enforcement expense

  • charged if you default — to cover the cost of recovering the money you owe

Paying back your payday loan

If you can't keep up with repayments, visit the National Debt Helpline website for help on how to repay your payday loans.

By law, payday lenders must lend responsibly. This means they can't give you a loan if they think you won't be able to repay it or it could cause you substantial hardship.

If you think the lender didn't lend responsibly, get free legal advice.

Woman standing with her arms crossed, smiling.

Alisha gets a no interest loan instead of a payday loan

Alisha's fridge stopped working and she needed a new one fast. She found one for $1,200, but her bank wouldn't give her a loan.

Alisha found a payday lender online who would give her the money in an hour. Before applying, she used Moneysmart's payday loan calculator to see how much the loan would cost her.

A payday loan of $1,200 would have a $240 establishment fee and a $48 monthly service fee. If Alisha repaid the loan over one year, her repayments would add up to $2,016. That's an extra $816 just for fees.

One of Alisha's friends suggested a no interest loan. These loans have no interest or fees and can be used for essentials like fridges or furniture.

Alisha went to her local community centre, where a no interest loan adviser helped her to apply. That afternoon, she had a cheque for $1,200 to buy the fridge.

Now, Alisha only needs to repay $1,200. Compared to a payday loan, she saved $816. And she was still able to get the fridge the same day.