What is a payday loan and is it bad for my credit score?

What is a payday loan and is it bad for my credit score? | Personal Loan FAQs

Last updated: 07 June 2017

Are you thinking about getting a personal loan and have some questions? Don’t worry, so does everyone else! We answer some of the frequently asked questions about Personal Loans here so you can be in the know!



A payday loan, sometimes called a ‘small amount loan’ is a loan of up to $2,000 that has a loan term of between 16 days and 1 year.  Typically, they are promoted as a way of funding unexpected or emergency expenses that cannot wait until the next payday.

The trade-off for this quick access to emergency credit is that payday lenders can charge a range of different fees, including:

  • A one-off establishment fee of 20% of the amount loaned
  • A monthly account keeping fee of 4% of the amount loaned
  • A government fee or charge
  • Default fees or charges (if you fail to pay back the loan on the due date)
  • Enforcement expenses (if you fail to pay back the loan, these are the credit provider’s potential costs associated with recovering the money)

It is also important to consider that using a payday lender could have implications on your credit score. For example, an application for a payday loan could be given a different weighting to another type of credit application when a Credit Reporting Body calculates your credit score, and could potentially lower it.

Find out what you should know about pay day lenders here.


Still have questions?  You can read more about what you need to know about personal loans here in our Learning Hub.

Learnt something?  If you think that now you know a little more about them that a personal loan might be right for you, you can compare a variety of personal loans right here on our comparison platform.