Payday loans

Want to borrow $2,000 or less? Check your options

Need money in a hurry? You may want to take out a payday loan (also called a small amount loan or cash loan). Here we explain how they work and outline your other options.

How does payday lending work?

What is a payday loan?

A payday loan is a loan of up to $2,000 that must be repaid between 16 days and 1 year.

How do you pay it back?

You will usually repay a cash loan by:

  • A direct debit from your bank account, or
  • A deduction from your pay

Your loan repayments will usually be deducted on the day you are paid, so make sure there is enough money in your account to cover this repayment and your other expenses.

Alternatives to a payday loan

If you need money, there may be cheaper alternatives to a small amount loan:

  • Negotiate with your utility provider: If you're having trouble paying an electricity, gas or water bill, contact your utility provider. Most companies have hardship officers who can help you work out a plan to pay the bill in instalments or apply for emergency utility bill vouchers - see problems paying your utility bills
  • NILS® or StepUP loan: If you're on a low income, you may qualify for a no or low interest loan to pay for essential household goods or personal services such as medical treatment
  • Centrelink advance payment: If you're eligible for Centrelink benefits, you may be able to get an advance payment on your benefits, with no interest charges - see the Department of Human Services website

If you're in a crisis and need emergency relief or emotional support see our urgent money help webpage.

If you do decide to go ahead and get a small amount loan, make sure you shop around. Different lenders charge different fees, so don't just go with the first lender you see.

Case study: Misty discovered she could have got a small loan for less cost

""Misty's washing machine stopped working and she needed to buy a new one. She didn't have enough savings and had a default listed on her credit report so didn't think she'd be able to get a bank loan.

She searched online and found a small amount lender who said she could get the money on the same day. She filled in an application and by next morning had $1,000 in her bank account. Over the next 6 months, she repaid the loan plus fees which cost her a total of $1,440.

Later, one of her friends told her about a local not for profit organisation that offered no or low interest loans to people on low incomes at a lower cost. She realised that if she had got a no interest loan instead, she would have been $440 better off. 

Who can get a cash loan?

Credit providers are required by law to lend money responsibly, which means they must not lend you money if they think the credit would be unsuitable for you.

There are some circumstances where it is less likely for a lender to give you a small amount loan. For example:

  • You have had two or more other small amount loans in the last 90 days.
  • You are spending all of your money each pay and are unable to meet your other expenses.
  • You have defaulted (that is, failed to pay back by the due date) another payday loan.

Centrelink recipients

If you receive at least half of your income from Centrelink, the repayments on all the loans you have (including the loan you are applying for) must not exceed 20% of your income. If they do, you will not qualify for a loan.

What you need to give the lender

Bank account statements

The credit provider will ask you for the previous 90 days of statements for the bank account your income (including Centrelink payments) is paid into. If your income is paid into more than one bank account, you must provide 90 days of statements for each account.

These don't have to be paper statements. The credit provider may accept print outs from internet banking, but they might ask you for additional details to confirm you are the account holder.

This information will help the credit provider work out if you will be able to meet the repayments of the cash loan.

Other documents

By law, lenders must check your financial situation before they give you a loan. They may also ask you to provide:

  • payslips or Centrelink statements
  • copies of bills
  • copies of other credit contracts or statements of accounts
  • property rental statements showing if you are up to date with your rent

The number and type of documents a lender asks you for may depend on whether they have dealt with you before, your credit history and the information contained in your bank statements.

Important: MoneySmart does not lend money

ASIC's MoneySmart website does not lend money or arrange cash loans but is happy to answer your questions about loans and money. Email us at feedback@moneysmart.gov.au or call
ASIC's Infoline on 1300 300 630.

What will the loan cost?

Smart tip

Make sure you get the best deal on your small amount loan by comparing the fees different credit providers charge. You could get a cheaper loan with a different lender.

The fees and charges on payday lending are capped (limited to a maximum amount) by the Government. Find out what your loan will cost using our payday loan calculator:

Payday loan calculator

Limit on fees

While the exact fee you are charged will vary depending on the amount of money you borrow, credit providers are only allowed to charge you the following:

  • a one-off establishment fee of 20% (maximum) of the amount loaned
  • a monthly account keeping fee of 4% (maximum) of the amount loaned
  • a government fee or charge
  • default fees or charges (see below)
  • enforcement expenses (if you fail to pay back the loan, these are the costs of the credit provider going to court to recover the money you owe them)

Lenders are not allowed to charge interest on the loan.

This cap on fees does not apply to loans offered by ADIs such as banks, building societies or credit unions.

Case study: Dev shops around for a cheaper loan

Young Indian Man On BenchDev received an invitation to attend a friend's wedding overseas. He didn't have enough money saved up to cover the cost of the trip, so he thought about getting a cash loan.

He used our payday loan calculator to work out that if he borrowed $1,500 over one year, the most he would have to repay would be $2,520 including fees. He knew it was a lot of money, but he didn't want to miss the wedding, and he knew he could afford the repayments, so he decided it was worth it.

Dev compared the fees charged by a few different lenders, and found one where the establishment fee was 18%, instead of the maximum of 20%. The loan was still expensive but, because he shopped around, Dev was able to find one that saved him $30.

Default fees

If you default on your loan, you will usually be charged a default fee until you repay the outstanding amount in full.

If you do fall into default, the maximum a lender can charge you is twice (200%) the total amount of the loan. This includes any repayments you made under the contract plus default fees.

Before you sign the credit contract, find out when you have to repay the loan and what happens if you miss a repayment.

What to do if you have a problem with your loan

If you think you have been charged too much for a loan, talk to the credit provider, or get free legal advice on what to do. Find out how to complain or call ASIC's Infoline on 1300 300 630.

If you are finding it hard to pay off a cash loan, contact your lender straight away to discuss your options. Our trouble with debt page has advice on how to negotiate with them.

If you need help sorting out your money problems, talk to a financial counsellor - it's free and confidential.

A payday loan might sound like a fast cash fix, but make sure it's the right choice for you and always check if there's a cheaper option.


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Last updated: 20 Jun 2016