Sometimes it can seem too easy to access funding. Getting a car loan from a lender who doesn’t ask too many questions is always attractive. Accessing $ 2,000 to meet the bills and have a little extra for yourself sounds good.

Other phrases like “30 minute approval” or “call us because the bank said no” add to the appeal of payday loans.

However, more often than not, this is one of the times when it’s too good to be true.

Impact on the community

In 2019, the First Nations Foundation, along with the NAB and the Center of Social Impact, published My money stories, extensive research on Aboriginal peoples and financial services.

She found that nearly 22% of Indigenous people had accessed extra-financial credit, including payday loans, in the previous 12 months.

For the non-Aboriginal population, the rate was 8.4 percent.

These types of loans can have a lasting effect on a person’s credit scores and a person’s ability to obtain credit later in life. Even simple things like getting a mobile phone plan.

What is a payday loan?

The concept of a payday loan is to borrow money until you get your next payday, at which point you pay off the debt. But people rarely pay off the entire loan at once.

Payday loans are short term with high interest and high costs. Some companies will cap loans at $ 1,000 while others will allow people to borrow up to $ 10,000.

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What are the costs?

In 2013, the Australian Securities and Investments Commission (ASIC) reformed payday lenders to the point where they charge no interest.

Instead, they charge a fee. This means that the personal expenses will effectively be the same, but they have been disguised as something else.

While fees and charges vary from business to business, here are some of the most common fees for taking out a payday loan:

• Establishment fees of up to 20% of the loan value
• Monthly fee of 4% of the total loan value
• Default or late fees if you miss payments
• Excess charges if you don’t pay off your loan.

Hidden costs

The hidden costs of payday loans are found in the various fees that add up.

Say you have to take out a loan for $ 2,000 and pay it off over three months. It will cost you $ 400 (20%) to start it and $ 80 (4%) per month to pay it off.

If you paid it off within three months, the total fee would have cost you $ 640. This equates to an interest rate of 32 percent.

In total, you would borrow $ 2,000 to pay off $ 2,640 in three months.

Impact on your credit score

Whenever you inquire about obtaining any type of loan or credit card from a lender, it is marked on your credit score. It is not necessarily bad, but it is noted.

Generally, if you have researched or taken out a payday loan, it will be difficult for you to obtain funds from other lenders for a period of six months.

What are the options if you need quick cash?

If you are considering getting a payday loan to pay off other debt, it might be worth talking to a financial advisor who can explore your options.

You can call the National Debt Helpline on 1800 007 007 to have a private conversation with one of the advisors.

If you need to borrow money to pay some bills, you need to call the company first. Most power and telephone companies, for example, have hardship provisions where you can make smaller repayments on your bills over a period of time.

You can also look into the Interest Free Loan Program (NILS). These loans allow you to borrow up to $ 1,500 to repay over 12 to 18 months, which is more manageable within your budget.

However, there are defined criteria for this diet. You can visit the Interest Free Loan Program (NILS) website here.

If you were in dire need of more than $ 1,500, it might be worth considering a low interest loan. With a low interest rate loan, you can borrow between $ 800 and $ 3,000 with a low interest rate of just 5.99%.

Take a look at the StepUp Low Interest Loans website here.

Remember, there are always more options than the seemingly easy payday loans.

If you are struggling with debt and need advice, you can reach the National Debt Helpline at 1800 007 007.

By Phil Usher

Phil usher is a man from Wiradjuri and CEO of the First Nations Foundation, a national Indigenous non-profit organization with a vision to achieve financial prosperity for Indigenous Australians. www.firstnationsfoundation.org.au