Predatory payday lenders are profiting from vulnerable Australians and trapping them in spiralling debt, according to a collaborative report by 20 consumer advocacy bodies.
The report, The Debt Trap: How payday lending is costing Australians, projects that by the end of the year there will be $1.7 billion worth of payday loans lent out in Australia.
It also found that over 4.7 million individual payday loans were taken on by 1.77 million Aussie households between April 2016 and July 2019.
“Predatory payday lenders are profiting from vulnerable Australians to the tune of an estimated $550 million in net profit over the past three years alone,” explains Consumer Action CEO and Stop the Debt Trap Alliance spokesperson, Gerard Brody.
“The harm caused by payday loans is very real, and this newest data shows that more Australian households risk falling into a debt spiral.”
Payday loans (also known as small amount credit contracts or SACCs) are high-cost fast loans of up to $2,000 paid back over a period of 16 days to 12 months.
These loans are high cost because you can be charged a number of significant fees on top of the original loan – including a fee of up to 20% of the amount borrowed when you take out the loan (establishment fee) plus 4% per month.
According to the report, equivalent annual interest rates for these loans can vary anywhere between 112.1% up to as high as 407.6%.
And because these loans are for short periods with unaffordably high repayments, many Australians take out additional payday loans to try and keep up and suddenly find themselves stuck in a debt spiral.
In fact, the Alliance estimates 15% of payday borrowers fall into a debt spiral – which equates to 324,000 Aussie households.
“The debt trap happens because of a combination of factors: the high cost of these loans, their relatively short repayment terms, the vulnerability of the borrowers accessing them who are generally on low to moderate incomes and using them to meet day to day living costs,” explains the report.
Digital platforms are adding fuel to the fire, with payday loans that originate online expected to hit 85.8% of all payday loans by the end of 2019.
“Academic research has found that digital platforms are making payday loans very accessible but often borrowers do not fully understand the costs, risks and consequences of these loans,” explains the report.
The growing demand for payday loans is driven, in part, by aggressive marketing techniques.
“This advertising is also blending the ‘sell’ with advice on good budgeting, giving consumers a misleading message that payday loans are somehow linked to good financial management,” the report adds.
Don’t fall for the slick marketing and digital ease: payday loans hurt many Aussie families.
Not only that, but they will have an impact on your credit score as they are listed on your credit report, which in turn, can affect your application for finance.
So if you, or someone you know, has taken out a payday loan and wants to find out more, feel free to get in touch. We’d be happy to discuss your options with you.
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