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Everything you need to know about payday loans

If you're thinking about accessing a payday loan, it's worth gathering as much information as you can before you proceed.

What is a payday loan?

A payday loan is an unsecured loan provided on a short-term basis to cover expenses until your next paycheck from work comes in. They are a way for people to borrow money against their future paycheck to cover expenses in the here and now.

How do payday loans work?

Payday loans are named as such because they act as an advance payment based on the borrower's future paycheck (which they will receive on their next 'payday'). The payday loan borrower will write a personal check to the payday lender for future deposit or give them electronic access to the bank account their employer pays wages to.

Payday lenders will provide borrowers with part of their paycheck immediately with the agreement that they can recover the money plus interest when said paycheck arrives. The relationship between payday borrowers and the lender typically does not last a long time, concluding once the borrower's wage comes in.

This type of loan is unsecured, meaning that borrowers do not need to put up any collateral that payday lenders can claim if they fail to repay the loan. Since the borrowing arrangement is based only on your next paycheck, you do not need to satisfy as many eligibility requirements as you would with other loans.

How much do they cost?

Payday loans are often associated with higher interest rates than most other types of loans. Payday loans are more expensive than other types of loans due to their relative ease of access and short-term nature.

To combat predatory lending, laws have been created to protect consumers, some of which regulate how much interest payday lenders can charge on loans. Because of changes in the law, payday lending in Australia differs from how it has been historically perceived (today, payday loans are functionally identical to personal loans).

Establishment fees

In Australia, the establishment fee you pay for your loan will vary depending on how much you are borrowing:

  • For loans of $2,000 and below, the law states that payday lenders can only charge up to 20% of the loan amount.
  • For loans between $2,001 and $5,000, the max establishment fee is $400.
  • For loans over $5,000, the fee is up to the lender's discretion.

Monthly fees

Loan amounts of $2,000 or below can have a maximum monthly fee of 4% of the total sum. For loans of $2,001 and above, the monthly fee is determined internally by lenders.

Interest rates

The primary influence on the cost of payday lending is the interest rate. This rate will usually depend on how much money is being borrowed and how long the repayment terms are. If you can repay the loan in two weeks rather than in a month, you will pay less in interest since the lender is getting their money back faster.

You can access payday loans at Cash Train with a fair fee even if you have a bad credit score.

Payday loan repayments

Repayments for payday loans will depend on how much you have borrowed and how frequently you are expected to make repayments. The more frequently you make repayments, the less expensive they will be individually (and vice versa).

Some lenders may give you the option to adjust the frequency of your repayments as you go (such as paying monthly rather than fortnightly). Many lenders will also waive late fees in good faith as long as they are given notice that you won't make the repayment on time.

Situations where you might use a payday loan

There are plenty of situations where a payday loan could be helpful, including:

  • Paying urgent bills

If you or one of your family members have an urgent bill, such as something related to health or household utilities, accessing payday loans can be a solution to give you funds that you can act with quickly. Sometimes you need to pay for something before the situation worsens and costs escalate, making a short-term loan a viable solution.

  • Covering a dip in cash-flow

Maintaining consistent cash-flow is important so that you don't fall behind the curve. For example, if you are running a home business, you may need extra funds fast to secure something essential for your business to thrive.

Finding reputable payday lenders

If you wish to get a payday loan, you need to ensure that you engage a reputable lender. There are various payday loan services on the market for you to choose from, and you should try to gather as much information about them as you can before proceeding.

A reputable provider will follow all relevant Federal Government and State Law, part of which requires them to look at your credit report and perform a credit check before approving your loan. They will also ask you to provide bank statements to verify your income and ability to make each loan repayment.

Reputable lenders will, by definition, only lend funds to customers who they believe have the resources to make repayments comfortably. A poor credit score will usually not exclude you from accessing consumer loans if you have a stable income.

As a responsible lender, Cash Train performs consumer credit checks and assesses the income of all applicants before approving any loan. With that said, Cash Train can still provide an instalment loan to consumers with poor credit scores as long as they meet other eligibility requirements.

Once a loan proceeds through approval, funds can arrive in the customer's bank account within just a few hours, depending on their bank and the time their application was greenlit. Read more about how payday loans work with Cash Train on our website

Frequently Asked Questions

Is it a good idea to get a payday loan?drop down arrow expanded

Traditional payday loans with short repayment timeframes and high fees are generally not a good idea, as there are better ways to borrow money. A personal loan can be a better option as it has a more competitive interest rate and a longer repayment timeframe, making it more manageable.

    What do I need to know about payday loans?drop down arrow expanded

    You need to understand the terms that the payday lender is offering and ensure that you are able to make repayments without struggling. Understand the finance charge and determine precisely how much the loan is going to cost you.

      Why would a payday loan be denied?drop down arrow expanded

      Your payday loan can be denied if you don't meet the eligibility requirements, such as not having a job or being over 18.