You have probably heard of payday loans, if not before, then in the last few years, ever since the global financial crisis hit the entire world and Australia really hard. And this is a well-known phenomenon that payday loans become more and more popular as the financial situation becomes more and direr.
Basically, payday loans are quick and small loans that you can find with lenders that deal in this kind of financial service and that are usually paid off within two weeks or a month at most. They come with high-interest rates and they are given to anyone with steady employment or a record of steady income.
Historically speaking, payday loans are nothing new. They have been around for quite some time and even though they have never been popular in Australia as they are in the US and some other parts of the world, they are still quite popular and we can see that their popularity is growing over the last few years, once again, mostly due to the dire situation the finances are in the world and Australia alike.
Payday loans are special for a number of reasons. For one, they are very quick to get, especially if you get them online. Namely, when you apply for one of these loans, the lender does not check your credit history or your credit rating which is the most time-consuming process when you are getting other types of loans. Instead of this, you provide the lender with the proof that you have a steady income and they give you the loan. This means that you can get a payday loan the same day as you apply for it. It is even quicker if you do it online where you can get a payday loan in as little as a few hours.
It also needs to be said that the sums that you can borrow are limited. In Australia, the payday loans are usually between $100 and $1,000, although you might be allowed to borrow more depending on the lender and the continued relationship you have with them. The main reason why payday loans are limited is the fact that there are many cases in which people do not repay their loans, i.e. the default rates are high, significantly higher than for any other loans. It is estimated that more than 10% of people who take out payday loans do not repay them.
This is also the reason why payday loans come with extremely high-interest rates. When compared to even the most severe of interest rates on some other types of loans, payday loans come out to be much more extreme. Once again, this has to do with the default rates but it also has to do with the fact that these loans are given out and supposed to be repaid very quickly, which would make them quite unproductive for the lenders. They are giving them for short periods of time and lower interest rates would make no sense for them.
As you might have concluded yourself, payday loans are supposed to be taken out when you need a quick financial injection and when you are sure that you will be able to repay them in time. The time limit for repaying payday loans is usually a few weeks, which is supposed to be the period of time between paydays for most people. This is, in fact, how these loans got their name. Of course, most lenders will give you more time, but you will be paying more for your interests and you might even have to pay for some fees which are also exorbitant when payday loans are in question.
As a potential lender, there is one essential thing that you need to remember and that is the fact that payday loans should not be used as a solution for your everyday issues with the money and that you should only be taking out payday loans when you need quick cash and when you will be able to repay the loan in time. If you try and use payday loans as a means to cover for your expenses in the longer term, you will soon find out that the interest rates can bury you.