If you’re tempted to use one or more payday lenders to get you through the working week, just don’t. It’s never a good idea.
By Georgie Koch
In today’s society of instant gratification we can get most services and convinces at the touch of a button or tap of a screen.
Anything less than lightening speed and we crack the shits big time. Slower than blink-of-an-eye internet, delayed trains and people that don’t pick up the phone are top of the list.
So when we need some cash, waiting until payday can feel like an eternity.
Enter the micro payday lenders like Nimble, Wallet Wizard and Friendly Finance, with their too-good-to-be-true promises of small, fast loans and quirky ads with hipster humour. It’s like the guy in the giant rabbit onesie is trying to say, “Hey there young, broke kids, we totes get you, and we can totes float you some cash for beer or pizza or whatever, you know, we’re cool.”
What they don’t advertise in their Wes Anderson-colour schemed sales pitch is how quickly their pearly white smiles turn into fangs. Ready to drain the financial life blood out of you.
Immediacy is hella expensive, and this my friends is why you should never resort to using payday lenders.
Interest rates are sky-high
Payday lenders usually offer loans from $100 to over $1K, promising to have the cash in your bank account in an hour.
The interest you’re charged is determined by the size of the loan, how often you’re paid and how often you intend to repay in instalments. With Nimble, for example, a $500 loan repaid from your monthly salary in two instalments will end up costing you $640.
That’s a 28 per cent interest rate, and only for that monthly period.
If you worked that interest rate out as a yearly figure, you’d probably faint or cry. In most cases it’s higher than the rate charged when you withdraw cash from a credit card, which is probably the oldest and most important financial no-no.
Fees creep up on you
In addition to nose-bleed-inducing interest rates, payday lenders also slap you in the face with fees, which hurt like that telegraph pole you didn’t see when you were walking down the street while snapping.
These fees generally kick in the moment you miss a payment, and there’s usually an additional fee for each day you fail to make your scheduled repayment.
Sound familiar? Scary BNPL debt racks up in much the same way.
It drops you into a debt cycle
Any low income neighbourhood (here and overseas) will tell you that payday lenders feed off the poor.
They seem to make promises that will solve all your money problems, but end up only making them worse. People borrow money to pay bills or debt, but only dig themselves into deeper holes, swamped by loan repayments they fail to meet.
The fees roll in and the interest rates climb, which sometimes causes people to take out additional loans to pay off their existing loans. It can feel like treading water in a ski suit with no land in sight.
Still, despite all these problems payday lenders seem to be doing okay, particularly if their expensively-produced ads are anything to go by.
A 2019 report compiled by consumer advocacy groups found that 1.77 million Australians have taken out a payday loan, which generated a net profit of $550 million for the lenders. Since then, ASIC have been cracking down on the industry, but improvements are moving slowly.
Yet another reason why you should steer clear of payday lenders at all costs.