Comparison website Finder.com.au is urging Australians to be aware of the risks when taking out short-term loans following a rise in demand through the site.
Enquiries and traffic to the website have more than doubled every month since January when Finder.com.au launched a comparison of 11 short-term loan providers – also known as “payday” loans.
Short-term loans are small loans between $1,000 and $5,000 designed to be paid back within one month.
The loans are more expensive than other credit facilities such as credit cards and personal loans, with an establishment fee of 20 per cent of the principal amount borrowed and 4 per cent of the principal amount per month, according to providers on Finder.com.au.
Money expert at Finder.com.au Michelle Hutchison said she is not surprised by the popularity of short-term loans.
“Short-term loans are one of the fastest ways to secure a loan and they can be much more accessible to those with a bad credit history, which is why they are so popular,” Ms Hutchinson said.
“According to the Finder.com.au database, one of the 11 providers will give you a loan by the next business day, seven of the providers offer same-day turnaround time and three offer loans within one hour,” she said.
“Some providers will approve loans to people with black marks on their credit file where they have defaulted on loans in the past, while one provider now has no credit check.”
A $1,000 short-term loan paid off in 30 days would cost $240. Other fees can be charged such as late payments ($35–38.50 depending on the provider), some charge a daily default fee of $7, dishonour fee, collection transfer fee, SMS balance enquiry, BPay and card load fees.
“Because these loans are high risk to the provider, they are much more expensive than other types of loans so it’s important to find out all the details and read the fine print before signing up,” Mrs Hutchison said, adding that while Australians should avoid paying too much for a loan, some people can benefit from them.
“Short-term loans should be avoided as there are ways to seek help for those who are struggling with their expenses before seeking out a short-term loan,” she said.
“However, short-term loans can be a reasonable option as a last resort because of their fast turnaround and low lending criteria.”