What to Consider Before Getting a Payday Loan

Written on the 8 August 2018 by Nathan Drew, Fox Finance Group

What to Consider Before Getting a Payday Loan

 

How Does a Payday Loan Affect Your Credit File?

Before you make the decision to take out a payday loan it's important that you understand what you are getting yourself into. In this article we will give you some facts around how you could be affected so you can consider all your options before jumping into any short-term payday loan arrangement.

The way that most financiers view payday lenders in the marketplace has changed.  Major Australian Banks have now made the decision to stop backing payday lenders in an effort to protect their own reputation given they have certain policies on corporate social responsibility. There is also increased scrutiny of the payday sector from the corporate regulator ASIC.

Payday loan providers have been criticised for targeting people who are unlikely to make ends meet. There have been scenarios where loans that are rolled over, or not paid back on time as set out in their schedule can carry annual interest rates that can be more than 300 per cent. Yep, that's 300%.

We hear daily stories of people who have been caught in endless cycles of debt through very expensive forms of finance. It has an impact at a human level and an economic level. This cycle of debt leads to additional anxiety and resources are held back within the family like food, education and health. At an economic level, it can also lead to entrenched poverty within the household.

Payday lenders have been forced to find their funding overseas as major wholesale funders here in Australia have grown scared of what lies ahead for payday lenders.

It really is a case of buyer beware when it comes to payday lending. We are seeing major financiers putting restrictions in place for applicants that have made any payday lender enquiries recently. In most cases, these lenders will now not consider an applicant that has made an enquiry to a payday lender in the past 6 months, which means that you don't even have to have taken the money, you only need to have made the enquiry with a payday lender online as this will show up on your credit file.

Why won't they consider you for a loan? 

It's simple. Financiers view that if you require a payday loan, then you are not able to live paycheck to paycheck. In their eyes, you are using the payday loan as a top up to get you through to your next paycheck. Some financiers would then view lending you more money as irresponsible lending as it looks like you are already currenlty under financial stress and not able to handle your expenses week to week.

But is this really your situation?

Payday lenders are now flooding the market with very clever marketing and advertising, especially on TV. They make it look very easy to get your hands on "cash" fast. Clever marketing strategies are being adopted to lure people into the quick easy cash funding platform which could have long lasting effects on a person's credit file.

So, before you jump into a payday loan, think of the long-term consequences to your credit file and what effect this will have on your future capacity to borrow money at a reasonable interest rate.

If you have questions about this article, please feel free to contact our team to discuss this further.

We are here to help you untangle the web of finance. As a Fox Finance Group client your financial world becomes a whole lot simpler with us in your corner.

Do you know what your Credit Score is?

Would you like to understand your Credit Score better?

Get your Free Credit Score Check with us right now.


Author: Nathan Drew, Fox Finance Group
About: CEO - Fox Finance Group