With many Australians doing it quite hard in the current economic climate, there is some intrigue placed upon Pay Day lenders offering quick cash, which can help pay the bills on time…but it can come at a very hefty price.
A simple enquiry with a Pay Day lender will appear on your credit file, which isn’t looked upon too favourably by traditional lenders and banks. This is a concern for those who are looking to access residential finance to assist with purchasing a home or simply chasing a better deal on an existing home loan. In some cases, this can lead to a straight decline on a home loan application.
Accessing fast cash is also painfully expensive in terms of the interest rate the money is lent on. This type of accelerated cash can get you across the line in the short-term but bite you twice as hard when it comes to ultimately paying it back.
We’ve highlighted the four main concerns with a Pay Day lender below.
- Shockingly high cost
In some cases, you could be required to repay approximately 20% of the amount borrowed, plus 4% a month. These types of lenders are not legally obliged to tell you how much you’ll pay across a year, which is shocking and actually scary! It’s not just a high interest rate you could incur, you might also be charged late fees by the day if you miss a repayment. This can add up really quickly, placing you in a very tough position to claw your way out.
- How you pay it back
Repayments are debited directly from your pay, which is great to ensure you pay it back. Just be careful as this obviously leaves you with less money for next week’s groceries and living costs, and this is where the spiral begins…especially if you are required to take unpaid leave, or even worse you lose your employment.
- Default fees
If you can’t make a payment on the due date, you’ll likely be hit with default fees, which The National Debt Helpline says can be up to double the amount you have borrowed. If you miss a period of work, you could be hit really hard. The National Debt Helpline advises that many Pay Day borrowers find themselves in trouble, with no way out. Once you’ve agreed to terms, you’re required to pay all fees and interest rates in full.
- The Pay Day loan spiral
Pay Day loans seem to multiply quickly, with some seeking additional loans to help repay the original debt. This is where the spiral begins, and quickly becomes out of control.
Hopefully most people don’t need to utilise this type of loan arrangement, and we can help way up your options. A Bernie Lewis Home Loans mortgage broker may have a more desirable and sustainable solution, particularly for homeowners with equity in their property. Call us on 8300 8300 today, or simply fill out this form!