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Payday loans a dangerous option for Aussie consumers

Australian consumers urged to explore options before taking out payday loans

Australians should explore other options before resorting to costly and potentially dangerous payday loans, says the Customer Owned Banking Association. 

According to recent research, almost 1.6 million Australians have used payday loans in the past three years alone. This is despite ongoing warnings about the high costs and subsequent debt cycle that payday loans can create.

Payday loans usually have very high fees and interest rates that are far more expensive than loans through other lenders. In some cases, consumers pay interest rates greater than 20 per cent and exorbitant fees for late payments.

Customer Owned Banking Association Director of Strategy Sally Mackenzie recommends consumers consider how much they will pay in total before taking out a loan.

“Quick access to cash can seem like an enticing option, especially when you’ve got bills to pay or need to buy household items, but they come with hidden costs.

“Before signing up to a loan, consumers need to be aware of the hidden costs of payday loans. On top of the money you borrow, you may also have to pay an establishment fee, high monthly interest and even default fees if you don’t pay the loan back in time. ASIC’s MoneySmart has a great tool to help people with this.

“Consider other alternatives if you need money urgently. You may consider alternatives like a NILS for household items, medical and dental costs; or emergency relief services for immediate necessities.”

A consumer’s credit rating can also be affected by a payday loan – especially if payments aren’t made on time.

“If you miss a payment on a payday loan it can show up on your credit rating and may impact your ability to borrow from other lenders in the future.

“While you may need money to pay for an urgent expense, payday loans can create new money problems that you will have to deal with,” explained Ms Mackenzie.

Australians struggling with payday loan debt are urged to visit ASIC’s MoneySmart website to learn more or contact the National Debt Hotline on 1800 007 007 for free and confidential advice from professional financial counsellors.

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