Payday loans frequently make the headlines—but not always for the right reasons. These “quick fix” short-term loans can save the day in an emergency, but they aren’t without their pitfalls.

Many lenders across the globe have come under attack for charging sky-high interest rates, using nefarious debt collection practices, and driving thousands of consumers into a debt trap.

But there is one dark truth about payday lenders that trumps all others; they always provide cash when needed and with a fast approval rate. And considering that 31% of Australians have almost no savings, payday loans are the perfect “lifebuoy” for many Australians.

In fact, recent research from Digital Finance Analytics found that 1 in every 5 households in Australia has used payday loans over the past three years. But what are the reasons behind the growing popularity of these loans in Australia? Keep reading to find out.

1. Regulated Payday Lending Market

The Australian government has flexed its regulatory muscle over payday lending, implementing policies geared towards protecting the consumers.

The demand for payday loans in Australia has been growing exponentially, a phenomenon that triggered the regulatory authorities to take action. Research shows that between 2004 -2014, the payday lending market increased twenty-fold to reach $400 million.

The demand continued to surge, and between 2016 and 2019, over 4.7 million individual payday loans were written, worth approximately $3.09 billion.

To protect its citizens from falling into a debt spiral, the Australian government enacts regulatory policies from time to time. Payday lending in Australia is now covered by the National Consumer Credit Protection Act (NCCPA) of 2010 and the National Credit Code.

The new laws introduced in 2010 banned loans of over $2,000 that must be paid back in less than 14 days and introduced a cap on loan charges, including a 20% maximum establishment fee. These laws also prohibit lenders from taking security on payday loans.

2. Fast or No Credit Check Process

One advantage that payday loans in Australia have over other loan facilities is the fast approval rate. Most lenders promise a fast approval rate of 24 hours. Better still, leading payday lenders, like Nimble, will process the loan within 60 minutes, as long as your application is received before 4.30 pm on a banking day.

Another aspect that makes Australia a great country for payday loans is the few credit checks required for securing these loans.

Only a few lenders will ask for credit checks, and that will only happen when you’re negotiating for large amounts. Overall, no credit checks are done by the majority of lenders, which makes these loans very attractive to borrowers.

3. No Interest Rates

Australian payday lenders aren’t allowed to charge interest rates. Instead, they make up for interest by charging fees. According to the Australian Securities and Investment Commission (ASIC), payday lenders can only apply the following charges for loans under $2,000 with 16 days to 1 year repayment period.

•          A one-off establishment fee of up to 20% of the amount borrowed
•          A monthly service fee of up to 4% of the loaned amount
•          A government fee—most lenders don’t charge this
•          Default fees if you don’t pay the loan by the due date
•          Enforcement fee, if the lender has to take you to court for failing to repay the loan

Still, payday loans are costly, but the prohibition of interest charges helps to prevent lenders from exploiting the borrowers ridiculously.

The Final Thoughts

Payday loans are a great way to meet your urgent needs promptly. However, they can also leave you indebted for years.

While the Australian government has strict regulatory control over payday lending, legislative loopholes should be of concern to you. It’s advisable to go for payday loans only if you’re in urgent need of quick cash and can’t wait till the next payday.