3 things you should know about payday loans

How payday loans can hurt your credit score

Last updated: 17 October 2018

Thinking of applying for a payday loan? Think twice, we’ve put together questions about payday loans so you can learn how they’ll affect you and your credit score.


1. What is a payday loan?

A payday loan (also called a small amount loan, cash loan, or quick loan) is a loan of up to $2,000 that must be repaid between 16 days and 1 year. People often use payday loans to get access to cash quickly.

Payday lenders are not allowed to charge interest on the loan, however they do charge very high fees. The Australian Government has capped the amount of fees and charges that are charged on payday loans to:

  • A one-off establishment fee of 20% (maximum) of the amount loaned
  • A monthly account keeping fee of 4% (maximum) of the amount loaned
  • A government fee or charge
  • Default fees or charges
  • Enforcement expenses (if you fail to pay back the loan, these are the costs of the credit provider going to court to recover the money you owe them)

Concerns have been raised in Australia over the past few years about the payday loan industry, so think twice and do your research if you’re thinking about applying for a payday loan.


2. Can it impact my credit score?

Yes! Payday loans can negatively impact your credit score. Remember, a credit enquiry for a payday loan could be given a different weighting to another type of credit application (such as a mortgage enquiry) when a credit reporting body calculates your credit score. Additionally, some lenders may not approve your application for credit if they see that you have payday loan enquiries on your credit report.


3. Are there any alternatives?

If you’re experiencing financial difficulties, there are a few other options:

  • Contact your credit provider and explore their financial hardship options. You may be able to extend your loan term so that you make smaller repayments over a longer period of time or take a repayment holiday to help you tackle your debt.
  • Look into no or low interest loans from Good Shepherd Microfinance, StepUP, and Good Money.
  • If you’re eligible for Centrelink benefits, check if you are able to get an advance payment on your benefits.


You can also find a list of resources on our Key Resources page.


The information in this article is correct as at 4 May 2020. Credit Savvy endeavours to provide accurate information and no responsibility is taken for errors or oversights.