Credit Savvy Urges Australians to Resist Payday Lending

Sydney, Australia, August 18, 2015: Consumer advocate, Credit Savvy, has called for greater awareness of the risks associated with payday lending, and its potential negative impact on the future financial health of Australian borrowers.

~ Research suggests consumers are up to $228 worse off after just one month after using a payday lender compared to a personal overdraft [1] ~

In light of the Federal Government’s upcoming regulatory review of payday lenders after a recent ASIC report [2] , Dirk Hofman, Managing Director of Credit Savvy is concerned Australians could be tempted by the promise of easy money from payday lenders, without realising that this could have long term negative consequences on their perceived credit worthiness and financial wellbeing.

“Household debt is at record levels, and more than half of Australians were found to experience a cash shortfall between their paydays last year [3], so payday loans are dressed up in friendly packaging to look like a convenient solution,” said Mr Hofman. “However, our research suggests that Australian consumers really need to watch out for the high fees associated with these loans.”

Credit Savvy found that in many instances, if a consumer borrows $1,000 from a payday lender, he or she will owe the lender $1,240 in a month’s time – that is $240 in fees and interest charges after a single month [4].

However, when using a $1,000 personal overdraft which can be as cheap as $12 in fees and interest charges after one month, a consumer could save up to $228 compared to a payday loan [5].

Another alternative to a payday loan is a credit card cash advance. Drawing a $1,000 cash advance can cost as little as $28 after one month [6].

Consumers may also be unaware of the impact of payday lenders on credit scores. An application for a payday loan is generally given a different weighting compared with other types of credit when a Credit Reporting Body calculates an individual’s credit score, and could potentially lower it. Credit Savvy provides Australians with free access to their Experian credit score and is an advocate for positive credit behaviour.

“We urge Australians to try and avoid payday lenders. When you consider that credit enquiries stay on your credit file for up to five years, you need to ask yourself – do I really want this payday loan application to show up on my credit file in a few years’ time when a bank is considering my car or home loan application? The risk is that this may limit your choices for credit in the future,” said Mr Hofman.

The Federal Government review into payday lenders is expected to conclude at the end of the year.

Credit Savvy’s Top Tips:

  • Try to avoid using payday lenders by planning ahead and budgeting wisely.

  • If you’re in a difficult spot, talk to your credit provider – many of them have dedicated financial hardship teams. They may be able to offer you options such as a repayment holiday, or an extension on the term of your loan.

  • Check and monitor your credit score

  • Do your homework, shop around and consider switching provider, or an alternative credit product (such as a personal overdraft or line of credit or even a cash advance on your credit card)

  • Don’t make too many applications for credit (credit cards, loans) in a short time frame

  • Consider using free resources such as Debt Self Help and Doing it Tough. Consumers can talk to an independent financial counsellor for free by calling 1800 007 007.

  • Learn more about payday lenders here.

Note to Editors:

[1] IMB Personal Line of Credit as of 11/08/2015 [2] Payday lenders and the new small amount lending provisions, Australian Securities & Investments Commission, 17th March 2015 [3] ING Direct Household Financial Wellbeing Index, April 2014 [4] Cash Converts Cash Advance Loan, LoanRanger Cash Loan, Nimble Cash Loan, Sunshine Loan Centres Cash Loan – costs correct as of 11/08/2015. This is equal to the regulated cap of 20% establishment fees and 4% monthly account fees. [5] IMB Personal Line of Credit as of 11/08/2015. [6] ME Frank Credit Card Cash Advance

About Credit Savvy

Credit Savvy is a free online service that helps Australians understand their credit reputation and how they can actively manage it. It uses data from credit reporting body Experian to provide Australians with free access to their credit score, free monthly re-scores and the ability to track their score over time and receive alerts for any key changes to their Experian credit file.

Changes to the Australian Privacy Act in 2014 allowed more information about each consumer’s credit behaviour to be included in their credit file, such as credit limits and repayment history. In doing so, Australia is moving towards a system of Comprehensive Credit Reporting which has been adopted in other countries, such as the US, UK and NZ. Approximately 80% of credit active Australians don’t know their credit score.

For more information, please visit www.creditsavvy.com.au.

Media enquiries: Jo Balfour / Shuba Paheerathan Progressiva PR +61 405 542 018 / + 61 438 606 424 jo@progressiva.com.au / shuba@progressiva.com.au