More and more Australian households are finding it harder and harder to keep pace with the ever demanding cost of living such as rising food, gas, electricity and water bills. They are turning to payday loans as a temporary solution.
Australia is becoming an expensive place to live. There are approximately 380,000 Australians and up to 100,000 Victorians that are applying for payday loans to pay for car rego and maintenance, rent, food, utilities and mortgages.
Australians have become so dependent on payday loans that this service industry has grown 10 fold in the past 10 years. The growth and popularity of payday loans are following the trend of the United States where there are more payday lender stores than there are Mac Donalds or Starbucks.
Zac Gillam from Consumer Action Law stated that "The growth of the industry is really scary." In Australia research shows that the number of payday lender stores have multiplied from about 80 to over 800 outlets and it has been reported that now more than $200 million per year is loaned out to consumers.
Zac also argues that payday lenders exploit the poor working class families and pensioners by charging high fees and imprisoning consumers to repeatedly borrow more by getting them to roll over their loans.
Whilst consumers need to be aware of sharks in this industry like in any other, they also need to understand that payday loans were created as short term, temporary, emergency loans that can be obtain in a hurry without all the hassles associated with traditional bank loans. Consumers should also be cautioned to pay back the loan as soon as possible, ideally when they receive their next pay check as interest charges on these loans are high.
Payday borrowers on the other hand see payday loans as a blessing and a viable means to aid them in their financial struggle to cover the rising high cost of living. As the cost of living continues to outstrip wage increases, more consumers are opting to use these cash advance loans to cover their income shortfall.
There are reports to urge the Australian Federal Government to place a cap on interest rates charged by payday lenders and for a review of their credit laws. Currently payday lenders in Victoria have an interest rate cap of 48% excluding fees and charges. While other states like ACT, NSW and QLD have more comprehensive restrictions and regulations.
Glenn Davidson (Australian National Marketing Manager for Cash Converters) argues that payday lenders are regulated by new responsible lending laws. Mr Davidson also counters arguments made by Zac Gillam, denying that Payday lenders prey on the poor, disadvantaged and vulnerable as these loans are popular with a wide range of consumers including high paying professionals such as doctors and lawyers. Further, administration costs for these loans are high so placing a blanket cap on repayment rates and fees could restrict borrowers access to a valuable type of credit during times of need.
Cash advance loans are normally small sums of cash between $100 to $2000 and are designed to be repaid when the consumers receive their next pay packet in 2 to 4 weeks. They were never designed nor should they be handled as long term cash loans.
Customers can receive loans via direct deposit into their bank accounts and repayments can be set up to be withdrawn from their accounts on pay day.
The major cash advance lender stores include The Cash Store, Cash Stop, Cash Converters and Money3. Whilst online you will find payday lenders such as Cash Doctors, Dollars Direct, Payday Mate, Ferratum and many more.
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