Are Payday Loans Still Popular Among Borrowers?

Payday Loan

What is a Payday Loan

Small amount credit contracts (SACCs) are often referred to as payday loans, which is a high-cost loan, between $300 to $2,000, that must be repaid between 16 days and 1 year. These loans are designed to be paid back as soon as you get your next payday.

The Australian payday loan industry

Australia ranks second in the world for household debt levels, sitting just below the Swiss, with a debt a reality for most Australian households.

Household debt in Australia remains constant, with 74% of Australian households holding debt and nearly 800,000 Australian households have been adversely impacted by payday lending.

Most payday loan borrowers do not have access to a credit card or mainstream bank loan, while 60% are hampered by bad credit history. Without any other credit solutions available, payday loans may seem like the only way some borrowers can access the finance they need and the popularity of these loans is soaring for this reason.

The percentage of the personal loan market taken up by non-bank lenders has jumped in the past decade, from 24% in 2006 to 36% in 2018.

The value ($b) of SAAC loans has also tripled in the past decade, from $0.33b in 2006 to $0.89 billion in 2017. Additionally, most small and medium-sized non-bank loans are now taken out online, with 60% of non-bank small and medium-sized loans taken out online in 2018.

There are a wide range of factors that have been suggested to have contributed to the increasing popularity of payday loans including:

    ➤1. Difficulties for borrowers from lower socio-economic backgrounds to access credit from banks;

    ➤2. The rise of online lending platforms providing quick and simple access to small loans of up to $2,000 with little effort; and

    ➤3. Australia’s household debt to disposable income levels hitting record highs and rising levels of mortgage stress putting pressure on homeowners.

Types of borrowers drawn to payday loans

Payday loans attract a large number of borrowers:

    ➤1. Debt-stressed home owners and renters, with increasing financial pressures, trying to borrow their way out of debt and taking out payday loans to meet their home loan repayments;

      ➤2. Borrowers who require an emergency source of funding for a one-off expense;

      ➤3. Disaster victims, who see no alternative to these loans to avoid going broke;

      ➤4. Disadvantaged or vulnerable borrowers ie. with learning difficulties or littleto-no financial literacy;

      ➤5. Borrowers with high-paying and low-paying jobs with large debts, and looking for credit offerings to resolve bad credit problems; and

      ➤6. A single mum working part-time and on Centrelink benefits, who is struggling to balance her weekly budget

    Reasons why borrowers are purchasing payday loans

    More and more borrowers are relying on these short term loans. There are a number of perceived benefits attached to payday loans, which makes them appealing to borrowers:

    1. Quick application process and same-day processing

    Most payday lenders operate online and the application process can be completed within minutes and money deposited to your account the same day, making it an attractive option for people after quick access to funds.

    2. Loans eligibility can extend to borrowers with bad credit history

    Payday loans are accessible to most borrowers, with few eligibility requirements in comparison to banks. Payday loan credit approval criteria does not depend on you credit score, unlike normal personal loans.

    The most important thing that payday lenders care about is the need to see is that you’re employed and will be able to pay back what you owe within their timeframes.

    3. Access to a convenient 24 hour service online

    Payday lenders generally offer a convenient 24 hour service online and payday loans can be applied for at anytime, whether that be in the morning or late at night.

    4. Short terms

    Payday loans are offered to borrowers for a short period of time. You will usually have to pay off your loan within a few weeks to a few months of receiving the cash.

    5. Simple application process

    Payday lenders offer simple application processes, online or through smartphones, often only requiring your ID and bank account number/ scanned statements for verification purposes.

    6. Low value and easier to pay off loans

    Payday loans are small value personal loans less than $2k and typically easier for borrowers to pay off.

    Shift from small to medium-amount credit contract (MACC)

    Whilst payday loans continue to be popular, it is also noted that there is a trend amongst major non-bank lenders of them shifting away from small loans below $2k to medium size loans between $2-5k.

    A lot of the perceived benefits offered for payday loans also exist for MACC loans. Additionally, MACCS are more profitable than SAACs, as sums borrowed are greater, with the ability to capitalize on larger establishment fees, etc.

    One of the largest non-bank providers, Cash Converters, reported a 154.6 percent increase in its MACC loan book in 2018, Money3 stated a focus on building up its automotive business through medium-term secured loans.

    Credit Corp’s Wallet Wizard reported mainstream lenders (ie. banks) tightening their lending criteria was driving more consumers into its segment of the market. Increased regulator scrutiny and the Royal Commission inquiries are making banks introduce stricter lending criteria and it is harder for borrowers to obtain an unsecured personal loan from banks than it previously was. This trend will continue with revised regulations expected to be released shortly.

    Labor’s proposed bill, National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 [No. 2], outlines a number of changes, including requiring equal repayments and intervals, eliminating residual monthly fees charged to borrowers if they pay out their loan early and tougher penalties for non-compliance.

    With large numbers of borrowers taking out dozens of payday loans within an annual period, with no credit check, no capacity to make repayments and large debts; stronger regulations and incentives to encourage more responsible lending would go a long way to helping Australia to reduce household debt levels and discourage borrowers from building debt double the amount of what they borrowed.


Leave a Reply

Searching for a breezy, personal loan?

Look no further than Breezy Loans for quick finance topped with top-notch customer service and loan specialists who get it.

Breezy Loans Pty Ltd ABN: 29 627 702 943, Credit Representative Number 514197 is licensed and provide credit services under Australian Credit License 389610. If we could not provide you credit, we will help to match your credit enquiry with another lender partner from our panel of lenders who we think may help you. Our panel of lender partners are licensed and follow responsible lending practice. We may receive referral fee (amount not ascertainable) if you decide to go with them once approved. However, they may ask you further information to assess your loan application where you can deal directly with that lender.The information on this website is general in nature and does not take into account your objectives, financial situation or needs & does not constitute any financial advice. We strongly recommend you take independent advice before choosing any loan product.

Disclaimer: "Same Day Approval" as advertised - means, the applicant will get the application outcome on the same working day. If you are applying after working hours, you will get the reply next working day. Public holidays might affect the process of the outcome.

Disclaimer: "No Credit Check Loans" as advertised - means, most of the decisions are based on the present income of the applicant. There could be several reasons behind bad credit in past. A strong employment history and zero dishonour in last 90 days are required to be eligible for a no credit check loan. The lender can also perform a credit check as it is a part of application processing.


*Instant transfer is available to PayID holders with participating Australian financial institutions. Most of the payments are typically settled in under 60 seconds but may be subject to checks and holds at the sending or receiving bank. As the reason, our standard payment transfer time is 24 hours.

Industry Associations

Credit Sence Lead Market Overflow Credfin