Pros and Cons of a Payday Loan

Need to borrow money fast? A payday loan isn’t cheap… and while we all hope we don’t find ourselves in the position to need one, life happens!

Even if you have a bad credit rating, it doesn’t mean a payday loan is the only solution to your short-term financial woes. 


Read on to get a better grasp on the pros and cons of a payday loan and what alternatives might also be available to you. 




What is a Payday Loan?

A payday loan also goes by the name ‘small amount loan’ it lets you borrow up to $2,000 and you’ve got from 16 days to one year to pay it back. Before you reach for the payday loan bandaid, consider your total repayments. Let’s say you borrowed $2,000 over a year of repayments, your total repayments will be around $3,360—a cool $1,360 more than what you initially borrowed. Ouch. 


The Pros of Payday Loans

We get it, sometimes we all need quick solution to a money problem—and a payday loan offers just that:

  • emergency cash
  • quick and convenient access
  • high acceptance rates 
  • dependable supplement to your income when needed


The Cons of Payday Loans

Unfortunately in money just like in life, what goes up must go down. As in, your bank balance when you take out a Payday loan. Here are just some of the cons:


  • Expensive to pay off
  • The Loan Trap (you know; when you’re caught in the sticky web of borrowing, repaying, re-borrowing or rolling over loan repayments)
  • Time restraints
  • Could affect your credit rating
  • Loan Fees  


Now, more on those pesky fees...


Payday Loan Fees

Interest-free loan? Sounds like a good deal? Not exactly. While payday loan lenders can’t charge interest on payday loans, they sure can charge fees. Most payday lenders charge a one-off establishment fee of up to 20% of the amount borrowed and a monthly account keeping fee of up to 4% of the amount borrowed. 


Let’s do the maths: On a $2,000 loan, that's a $400 establishment fee and $80 per month for the service fee.



  • While most lenders don’t charge this, there can be an additional government fee or charge that covers any government duties
  • Missed payment fees—you can be charged a dishonour fee if you don’t have enough money in your nominated bank account to make your repayment
  • Default fees or charges—this charge can happen if you don’t make the necessary repayment by the due date (and the maximum amount you can be charged for default fees is double the amount you borrowed—yep, that’s right, up to 200% of the total loan amount)
  • Enforcement expenses—while these possible fees seem like they blur into each other, this one is charged if you default and is to cover the cost of recovering the money you owe


Are you tired of reading about fees? Us too.



How to approach Payday Loans

Now you’re briefed on the costs associated with paydays loans you’re better equipped to try to avoid them. If you do get into a bit of a pickle with your finances, there are some options you can explore before hitting up a payday loan provider. 


Have you asked your bank?

First, talk to your bank about alternative options—see if there’s room to move in any current loans you might have or ask about a personal loan with a low-interest rate.


Alternatives for Concession holders or low income

For some, there’s also the option of no or low interest loans—a no interest loan can provide quick assistance for up to $1,500  for essentials—something unexpected like your fridge going bust or your car breaking down. It’s called The No Interest Loan Scheme (NILS) and is available to individuals and families on low incomes. To qualify you’ll have a Health Care or Pensioner Concession Card or have an income of less than $45,000 per year after tax, have lived at your current place of residence for more than three months and be able to show you can repay the loan. 


Things to note about NILS: 

  • Loan assessment can take up to 90 minutes 
  • No interest loans can take up to 2 days to be approved, but if you have your paperwork in order it can often be approved on the same day
  • The loan is for specific needs such as essential household items, educational materials, some medical services and care repairs and tyres 
  • No interest loans are not cash loans—the NILS provider will usually provide a cheque made out direct to the supplier (for example, the appliance store or car repairer)

Then there’s StepUP low interest loan also for people on lower incomes who have difficulties borrowing from a bank. Like NILS you’ll need to have a Health Care Card or a Pensioner Concession Card, or be receiving Family Tax Benefit A, and also be able to prove you’ve been living at the same address more than three months to qualify. These low interest loans are for similar needs such as whitegoods or computers but you can borrow between $800 and $3,000 with an interest rate of 5.99% p.a. Repayments can be made weekly, fortnightly or monthly over a set term of up to three years, and you’ll need to complete a credit check.




If those options aren’t within your needs or you don’t fit the criteria, the better alternative to your bank or a payday loan is to speak to us! 


Reach out to our team here at LoanU



The thing about traditional banks is some lenders want to give you fast, easy money, regardless of whether you can afford it. LoanU is different. We offer a real alternative to high-cost, short term loans and offer you a pathway to consolidate your debt so you can focus on the larger problems you’re dealing with. 


How do we do it? 


We conduct careful responsible lending assessments and work with you to build your credit profile (that means improving your credit score!) all the while helping you save on interest and pay off your loans faster. 


Check if you qualify for a loan with LoanU without damaging your credit score by entering your details into our qualification calculator below. 


Check if I qualify

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or requirements. Therefore, please consider whether the information is appropriate to your circumstance before acting on it and seek independent advice from a finance or legal professional if necessary. All loans are subject to a full application and assessment by United Loan Solutions Pty Ltd trading as LoanU (Australian Credit Licence number 486303). LoanU is part of the PF Group Holdings Pty Ltd group of companies.




Get started. Talk to a finance specialist today.

1300 080 852

1300 080 825


enquiry [at]


PO Box 1995, Toowong DC, QLD, 4066