Why there's nothing smart about a payday loan
With news Nimble now has to pay back more than $1.5million to over 7,000 customers, many financially-strapped Australians might be breathing a sigh of relief.
Exactly a year ago, the ABC’s 4 Corners revealed the dangers of payday loans in a no holds barred exposé – and ASIC has now caught up up on the increasing popularity of short-term (or ‘payday’) loans.
The reality is, there is no such thing as ‘easy money’.
If you’re finding it tough to stay on top of everyday bills, payday loans are not the answer – because they will probably end up costing you a whole lot more than you realise. High interest and late fees can all add up – and place even more pressure on your monthly paycheque.
How much pressure? Consumer Action estimates some small loans under $2000 attract ‘effective’ annual interest rates of up to 400% (because they are short-term loans), and is calling for a cap of 48%. Plus, with other fees to factor in it really is a case of buyer beware.
In the short term, it might be smarter to talk to your service provider – utilities, for example, sometimes offer a hardship payment program, or your bank may consider consolidating smaller credit card debts into your mortgage.
We’ve said it before, and we'll say it again: make sure you read the fine print before you sign up for a loan that sounds ‘too good to be true’.
Payday loan providers are offering a service that people clearly want – at a significant profit. So it’s also up to you to empower yourself with some knowledge of all your options, because financial compliance requirements can only protect you so much.
And Map My Plan is a good place to start if you want to break the bad debt cycle.