Pay day loans: A quick fix or a vicious debt cycle?

What are payday loans?

Payday loans are a short-term financial solution that usually come at a high cost. These loans consist of small amounts of money being borrowed at high-interest rates against your next pay cheque. You repay the loan through deductions from your pay cheques or via direct debits from your nominated bank account.

Pros and cons of payday loans:


  • Ability to secure funds – even with a bad credit history
  • Access to immediate funds in the case of an emergency
  • It is a short-term financial solution
  • Minimal credit checks if any at all
  • Simple approval process
  • Immediate release of funds to the borrower


  • A high rate of default on loans
  • Can result in collection tactics and lawsuits if repayments are not made
  • Extremely high-interest rates and fees, so you end up paying more on the loan
  • Limited financial flexibility
  • Falling into a vicious debt cycle if you are unable to pay back the funds by the due date
  • Negative impact on your borrowing ability
  • Credit reports – bank view these enquiries negatively


What you need to know before you jump in…

  • Impacts on your borrowing ability

Every time you secure funds through a payday lender, these charges are reflected on your credit file. Most of the major banks in Australia will not lend to people if they have previously dealt with a payday lender. It is important to keep this in mind especially if the financial burden is small enough to handle. When it comes to the bigger commitments in life like taking out a mortgage or a personal loan, you don’t want to be in a position where your options are limited by your past decisions.


  • The vicious cycle of debt

Even though these loans may seem like a convenient solution, they come at a cost. Due to the lack of lender checks in place on the borrower’s repayment capacity, there is a high rate of default on such loans. As there is no limit to how many times you can borrow, it can reinforce the bad habit of continuously extending your loan. Don’t become a victim of this vicious debt cycle.


  • Think logically and stop paying more

Most payday loans involve higher interest rates than credit cards. At the end of the day, you may end up paying a lot on interest and fees. If you need the funds urgently for an unpaid bill, it is often better to consult the utility provider involved, rather than seeking out these quick fixes. Most of the time, your utility providers will be happy to put a payment plan in place to help you stay on top of your bills.


Alternate solutions

With the help of a financial consultant, you might be able to secure a loan that’s better suited to your lifestyle and doesn’t involve these risky “solutions”. Explore all the financial options available to you before you go to a payday lender. Instead of focusing on the short-term financial crisis, consider all the long-term repercussions that come with it.

There are several financial organisations that you can secure funds from – whether it be for personal or business purposes. Speak with one of our finance specialists today to find out more. Call us on 08 9254 6050 or send us an email via