What Is the Interest Rate on Payday Loans?

What is a payday loan? They’re a type of short-term loan that can provide quick access to cash when you need it most. They can help you cover unexpected costs outside your payday cycle, such as a car repair or a medical bill.

But what’s the cost for the convenience? Like any other type of credit, knowing all the costs associated with a payday loan is a smart financial move.

Borrowers often pay close attention to loan annual percentage rates (APRs)—but payday loans in Australia have a different structure. You don’t pay an annual interest rate. Instead, Australian payday loan lenders charge fixed fees. 

Let’s break down the interest rates on payday loans in Australia and all the other helpful information you should know before applying.

What this article covers:

How Payday Loans in Australia Work

Payday loans, also known as small or fast loans, typically range from a few hundred dollars to $2,000. Most payday loan applications are made online. The repayment period is 16 days to one year, meaning you can repay smaller loan amounts in full by your next payday. 

The Australian Securities and Investments Commission (ASIC) regulates payday loan lenders in Australia to help borrowers avoid exploitation and debt traps. It sets the maximum fees lenders can charge. So while each lender will have their own fee structure, there’s a limit to how much they can charge.

The maximum fee on payday loans of up to $2,000 in Australia is 24% of the loan amount. 

interest rate on payday loans

Cost of Borrowing Payday Loans

Instead of payday loans APR, here are the typical fees lenders charge in Australia: 

  • Establishment Fee or Administration Fee: It’s an upfront loan processing fee payable once your loan is approved. 
  • Monthly Fee: This is a monthly account fee paid over the lifetime of the payday loan.
  • Default Fee: This is the fee charged if you miss a payment or fail to repay the loan by the contract’s due date.

Maximum Payday Loans Interest Rate

ASIC placed a cap on payday loan fees. Below is an overview of Australia’s legal maximum interest rate. These fees apply to loan amounts of up to $2,000.

Payday Loan Fees  Maximum Legal Fee
Establishment fee 20% of the amount borrowed
Monthly fee 4% of the amount borrowed
Default fee Double the amount borrowed

The total maximum fee is 24%, which is a combination of the monthly fee and the establishment fee.

Fees and Interest Rates on Payday Loans Between $2,001 and $5,000

For loans between $2,001 and $5,000, the establishment fee is capped at $400 and interest at 48% per annum of the principal. 

Finding the Best Payday Loans in Australia

Ready to find the best payday loans in Australia? Start by researching reputable lenders who are ASIC accredited, have good customer service, and offer affordable rates for your situation. 

payday loans interest rate

Keep the maximum legal interest rate in mind to avoid lenders who might charge more than allowed.

If you need a faster and hassle-free way of finding reputable payday loan lenders, turn to Orange Loans. We understand that finding the best lenders and comparing payday loans in                                                                                                                                                                                                                                 Australia can be overwhelming, and there’s a lot at stake. 

Orange Loans is a lender finder and can match you with reputable payday lenders who offer competitive rates and flexible repayment terms. So if you need a payday loan, let us help you find the best loan that fits your budget and situation.

How to Apply for a Payday Loan

Applying for payday loans in Australia is often done online. Here’s what you need to know.

  • Compare Lenders

The first step in securing a payday loan is to research reputable Australian payday lenders. Then, compare their payday loan interest rates, fees, and charges.

  • Check Eligibility Requirements

The next step is to review the eligibility requirements, which can vary by lender. If you meet the criteria, complete the application form and submit any required documentation online, such as proof of income and identification documents. For most lenders, you must be at least 18 years old and be an Australian resident.

  • Wait for Application Approval

Once you’ve submitted your loan application, the lender will review it and decide whether to approve it. Most payday loan lenders review applications on the same day or within 24 hours.

payday loan interest rates

  • Conduct Contract Signing

If approved, you’ll receive a contract to sign outlining the loan amount, repayment terms, and any fees or charges. Read the terms and conditions carefully and understand the full cost of borrowing before signing any loan agreement.

  • Receive Funds

Once you’ve signed the contract, the lender will transfer the funds to your bank account, often within 24 hours.

Common Reasons for Payday Loan Application Rejections

While applying for payday loans is easy, not all applications are accepted. Here are some common reasons why your payday loan application could be rejected:

Multiple Existing Payday Loans

Payday loan lenders must lend responsibly by ensuring you can afford the repayments. Having multiple payday loans at once, particularly within the last 90 days, is a red flag for most lenders and might prompt a rejection.

Insufficient Income or Unemployment

Payday loans for the unemployed or applicants without sufficient income are scarce. Most lenders inquire about employment status and might reject your application if you don’t have a sufficient regular income.

payday loans apr

Centrelink Income

According to the ASIC guidelines, if 50% or more of your income is from Centrelink, your loan repayments can’t exceed 20% of your income. So if a lender determines that your repayments exceed 20% of your income, they’ll reject it to comply with the law.

Bad Credit History

Payday lenders may check your credit history as part of their assessment process. Lenders might avoid working with you if you have a history of missed payments or defaults. However, a few payday loan organisations offer credit to applicants with a bad credit history.

Cash Salary

Most payday loan lenders need to verify your income to ensure you can comfortably repay the borrowed amount. They usually do that by checking your bank statement for the last 90 days.

Most lenders will consider your application if you’re paid in cash but deposit your earnings in the bank regularly. If not, you might need to look for payday lenders who accept pay slips to verify income.

Not Meeting the Lender’s Requirements

Every lender has their eligibility criteria. Always check the application requirements before submitting your application. 

Search for loans that are best suited for your situation. You can easily find payday loans for students, bad credit, self-employed, Centrelink benefits, single parents, etc.

same day loans compare

Alternatives to Payday Loans

If the payday loan advantages don’t cut it for you, or you want to be aware of all your options before making a decision, consider the alternatives. It will help you identify the best solution for your financial needs. Here are the main alternatives to payday loans:

1. Personal Loans

Payday loans differ from personal loans in several ways. While most payday loans range up to $2,000 with repayment terms of up to one year, personal loans can be as high as $100,000 with longer repayment periods.

The interest rate on personal loans is often lower than that of payday loans. So if you need a higher loan amount with a lower interest rate and longer repayment terms, you might want to consider a personal loan.

2. Credit Cards

Credit cards are an alternative for covering unexpected costs. The best part of using credit cards is that you don’t have to keep applying for a loan when you need the cash since it’s an open line of credit. 

However, the interest rates on credit cards might be higher, and some providers add an annual or monthly service charge.

3. Centrelink Advance

If your major income comes from Centrelink, you can apply for an advance payment when faced with an unexpected expense. Check if you qualify for an advance before considering a payday loan.

payday loans interest rate

Payday Loans FAQs

Can I Pay Out My Payday Loan Early?

Yes. Most Australian payday lenders will allow you to repay your loan early at no additional cost. However, you must still pay the full amount associated with your initial credit contract. 

Can I Take Out a Payday Loan if I Receive Centrelink?

Yes, payday lenders will accept applicants on Centrelink payments. However, you must apply for loan amounts that won’t cause your repayments to exceed 20% of your income if 50% is from Centrelink.

How Do Same-Day Loans Compare to Payday Loans?

Same-day or emergency loans are disbursed on the same day you sign the agreement. Most payday loans are disbursed within the business hours of the same day you’re approved, making them a type of same-day loan.

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