Payday Loans

Payday loans are small amounts of money loaned to borrowers at very high rates. They were originally designed so that borrowers could pay back the loan after they received their next wages or Centrelink payment.

In Australia, payday loans are sometimes referred to as small amount credit contracts, or SACCs. A loan will be a SACC where it is:

  • Provided by a non authorised-deposit taking institution;
  • For less than $2,000; and
  • For a term between 16 days and 1 year.

The appeal of these loans is that they give people access to money quickly – borrowers can generally apply online, with few documents required.

If you are considering taking out a payday loan, it is important to be aware of the risks.

The amount of fees that can be charged are limited by the law, but can still be extremely high. Payday lenders are allowed to charge up to 20% of the amount borrowed as an “establishment fee” and a “monthly fee” of 4% of the amount borrowed. These high rates can cause debt spirals if you are unable to get on top of your repayments.

Over 12 months:

  • If you borrow $250, you could end up repaying $420.
  • If you borrow $500, you could end up repaying $840.
  • If you borrow $1,000, you could end up repaying $1,680.

Even though payday lenders must provide a warning about the risks of the loan either on their website or in their shop front, they are not required to display their fees as an annual interest rate.

For more information on the dangers of payday loans, see our Payday Loans reform fact sheet

or our newsletter from April 2015.

In 2013, ASIC took action against Nimble, a payday lender, for misleading advertising. Click here for our case note.

ASIC also took action in 2014 against two other payday lenders – Teleloans and Finance & Loans Direct – for avoiding their responsible lending obligations. Click here for our case note.

Information on our website is provided for information only and is not legal advice. For legal advice please contact CCLSWA.