How payday loans can hurt your credit score

How payday loans can hurt your credit score

Last updated: 25 January 2022

Considering a payday loan? Before you take the leap and grab that cash, take a look at our payday loan rundown. With the multitude of different credit options out there, being informed about the types of credit available can help you choose the option that’s right for you.


1. What is a payday loan?

Let’s start with the basics.

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

Payday lenders are not allowed to charge interest on the money you borrow from them, however they do charge very high fees. The Australian Government has capped the amount of fees and charges that apply 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)


There are concerns that payday loans can lead to greater financial difficulties for those who use them. Payday loans may appear to offer a fast fix of cash but the total repayments can often cause more financial pain. With many credit options now available, it’s worth considering all the options before you take out 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?

Yes! There are a lot of credit options on the market so it’s important to explore which meets your needs and fits with your budget. Along with traditional credit lines such as personal loans and credit cards, there are point of purchase credit options such as Buy Now, Pay Later.

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. If you have been adversely affected by COVID-19, some financial institutions will work with you to find a solution.
  • Look into no or low interest loans from Good Shepherd MicrofinanceStepUP, 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.


Although payday loans can provide a quick boost of cash, the financial hangover from them can be long lasting and may decrease your financial position overall. Know where you stand with your credit report before applying for any type of credit. Check out your credit report summary and credit report for free.



The information in this article is correct as at 17 January 2021. Credit Savvy endeavours to provide accurate information and no responsibility is taken for errors or oversights.