Unexpected expenses, such as car repairs or medical bills, can sometimes make it hard to make ends meet and you may be tempted to take out a short-term loan to tide you over until pay day.
RACQ's Nathanael Watts breaks down the different types of short-term loans.
You’re likely to see payday lenders, such as Nimble, Wallet Wizard and Cash Converters, advertising on TV and the internet.
Payday lenders are regulated by the Australian Securities and Investment Commission (ASIC) and the Australian Financial Complaints Authority (AFCA) but you should still be wary about the costs of borrowing money from them.
In fact, the Australian Government requires payday lenders to include a warning on their website about the expense and pitfalls of borrowing small amounts of money. This is often written in small print at the bottom of the website or required you to click a link to read the warning.
Anyone considering using a payday lender should follow the suggestions listed in this warning. This type of lending should only be used as a last resort if absolutely necessary.
ASIC MoneySmart’s payday loan calculator can help you consider the total costs of a payday loan.
Community organisations, such as Good Shepherd Microfinance, No Interest Loan Scheme (NILS) and Step Up Loan, provide low or no interest loans.
These loans are limited to essential items such as white goods, furniture, medical services and education items.
Eligibility requirements also apply, including being on a low income, having a healthcare/pension card and the ability to repay the loan.
Buy now, pay later services, such as AfterPay and Zip Pay, are available for retail purchases.
In many instances you won’t pay anything extra when using these services with the costs borne by the retailer.
It’s important to remember that purchases made using these services take an extended period of time to pay off.
Purchasing a $100 outfit for the weekend using AfterPay may seem simple and not cost you anything extra, but you may be repaying the amount over the next eight weeks.
If you make repayments using a credit card you may be charged credit card interest can add much more to the original purchase price of the outfit.
Ensure you meet your repayment obligations as fees accrue if you miss a repayment or extend your repayment period.
Payday advance companies, such as Earnd and InstaPay, allow workers to access up to 50% of their accrued pay early, at a cost of up to $2 per withdrawal.
While living pay-to-pay can cause financial stress, an advance on your pay won’t solve your money problems as it means you’ll have less money to spend during your next pay period and you may find yourself regularly relying on the service.
Consider creating a budget and speak to a free financial counsellor to help you get back on track.
The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.
The information in this article has been prepared for general information purposes only and is not intended as legal advice or specific advice to any particular person. Any advice contained in the document is general advice, not intended as legal advice or professional advice and does not take into account any person’s particular circumstances. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives and needs.