Tammy on 9 News Adelaide – Pitfalls of Payday Loans

The payday loan industry has increased significantly in recent years and more and more people are getting into financial strife with these short-term loans And with some advice on how to avoid getting caught up in the payday loan cycle, we are joined by Tammy Barton from MyBudget

Tammy, straight into it, what are payday lenders? Payday lenders are companies who lend individuals a small amount of money, so generally up to $2,000 and they loan them that money for a short period of time, so generally a week, seven days, up to 45 days and they charge high fees So their establishment fee can only be a maximum of 20% of the loan amount, and the monthly fee is 4% of the loan amount, which as a consumer we are used to looking at interest rates per annum So when you work that out, that's actually 48% per annum interest rate So they're very expensive That is a lot

Now, generally who uses them and why do we need to be wary of them other than of course the high fees? The people who generally use these payday lenders are people who don't have any savings In addition to that, they probably don't have access to a credit card Firstly, they might not have qualified to get a credit card, or secondly if they do have a credit card, they have maxed those credit cards out So the people most vulnerable to use these loans are people with no savings Why should we be wary of payday lenders? Because they are expensive

So if you were to borrow say $1,500 you would be likely to pay back a little over $2,500 for the privileged of borrowing that $1,500 Now for people who do have a payday loan at the moment or are considering it, what are the key things to remember to not get stung? Make sure you read the fine print and that you make your repayments on time because payday lenders are able to charge up to twice the loan amount in default fees which is 200%, so that's the first tip The second tip is talk to your creditors, so if you do owe your creditors money perhaps talk to them about putting a payment arrangement in place and then you don't have to get into the cycle of using a payday lender Because these loans are expensive, they have the potential to increase financial stress and not actually make the situation better How do you get out of the cycle of using a payday loan? What are other options and better ways to go about it? The first thing you have to look at is what is the root cause of the problem? Why don't you have savings that you can fall back on? 20% of Australians can't access $500 in an emergency so you really have to look at the root cause

And the best way to do that is put together a budget so you can get visibility into your finances, work out where you might be able to cut back and create some savings so that you don't have to rely on these payday loans Some very good advice on not getting stung Tammy Barton thank you so much for your time this afternoon No worries, thanks for having me Will