Payday loans: small, fast and expensive

The ads use friendly names — payday advance, quick cash, fast small loan. The law uses a duller one: a payday loan is a small amount credit contract, a regulated loan of a small amount that you pay back over a short term measured in weeks or months rather than years. Moneysmart's payday loans guidance calls it a payday loan or small amount loan, and lists the exact amount and term limits the law sets — this page describes the shape and leaves the current numbers there.

The gap between the marketing and the contract is the point to notice. What's sold is speed and ease: money in your account fast, minimal questions, a repayment that sounds small on its own. What you've signed is a credit contract with a fee structure attached — the part the ads skip and the next section unpacks. Moneysmart's one-line verdict covers the whole category: it might look like a quick fix, but a payday loan has a lot of fees.

There are real rules underneath. Licensed payday lenders must lend responsibly — meaning, in Moneysmart's words, they can't give you a loan if they think you won't be able to repay it or it could cause you substantial hardship. So a knock-back isn't an insult; it's the system doing its job. And a lender who asks no questions at all isn't doing you a favour — checking that you can repay is part of what licensed means.

Here's the twist that makes payday loans hard to compare with anything else: licensed payday lenders can't charge interest on them. That sounds like good news until you see what replaces it. The price arrives as fees — a one-off establishment fee charged for setting the loan up, plus a monthly fee charged every month of the term. Both are capped by law, and the current caps are listed on Moneysmart's payday loans page — they're percentages this page deliberately doesn't print, because the shape matters more than the number.

And the shape is expensive by design. The caps are expressed as a share of the amount you borrowed — not of what's left owing — so the monthly charge doesn't shrink as you pay the loan down, the way interest on a reducing balance would. A short loan still pays the full establishment fee; a longer one stacks up monthly fees for every month it runs. Miss a repayment and default fees are added on top — they have their own legal ceiling, also on Moneysmart's page, but nothing about it is small.

Because the price arrives as flat fees rather than a rate, the honest way to read a quote is cost per $100 borrowed: add up every fee in the quote, divide by the amount, and see what each hundred dollars actually costs you. Do that arithmetic on a payday loan quote and then on any other form of credit you can get, and the comparison usually stops being close. The checker further down this page does the sums on your own quote's numbers.

A payday loan is repaid out of the very pay cycles that were already too short — that's what the short term means in practice. The law recognises how hard those repayments bite: it caps them at a slice of your after-tax income over the repayment period, a limit that exists precisely because these repayments compete with rent, food and bills for the same pay. The current limit is on Moneysmart's page; the design lesson is simpler — every repayment makes the next payday smaller.

Smaller paydays are how the spiral starts. The gap the first loan covered reopens, the marketed fix is sitting right there, and the second loan arrives with its own establishment fee and its own monthly fees on top of what the first one cost. Moneysmart names this moment exactly: if you're getting a payday loan to pay off another loan, or if you're struggling to make ends meet, talk to a financial counsellor. Not another lender — a counsellor. That sentence is the boundary line between a one-off and a spiral.

If the repayments themselves are slipping, the same page points to the National Debt Helpline for help on how to repay your payday loans — and acting early matters, because missed repayments add default fees to a loan that was already expensive. The pattern to catch is the direction of travel: a loan that was meant to bridge one bad fortnight becoming the standing way the budget closes. Hardship help covers the levers that exist once you name the problem.

The alternatives aren't hypothetical — Moneysmart lists them on the payday loans page itself. First: a No Interest Loan, a community-run loan for essential goods and services with, per Moneysmart's no-interest-loans guidance, no interest and no fees or charges — you repay only what you borrowed. They cover essentials like appliances, furniture, car repairs and medical costs, the money is paid straight to the supplier rather than as cash, and they're built to be quick. Eligibility runs on income limits and concession-card routes — the current details are on that page.

Second and third: if you receive Centrelink payments, an advance payment may be available — an early slice of money you're already entitled to, rather than a new debt. And for the bill that's driving the shortfall, Moneysmart's advice is to negotiate directly — ask the provider about a payment plan. Utility companies, councils and telcos run hardship programs for exactly this; a payment plan on the actual bill costs nothing, while a payday loan to pay that bill adds fees to it.

And when the whole picture needs untangling, financial counselling is, per Moneysmart, a free and confidential service offered by not-for-profit community organisations. A financial counsellor can assess your situation, work out what to do about bills and fines you're struggling to pay, negotiate with the people you owe, and refer you to other help. The fastest door in is the National Debt Helpline on 1800 007 007 — its counsellors don't lend money or sell you anything, and work only in your interest.