- in Loans
Anyone offering fast online loans with no credit check is going to be charging you a high rate of interest.
When I say high, I mean way up in the clouds high. This can mean you start of borrowing a little and end up paying back a lot of money if you're not careful.
But first things first, a quick crash course in loan finance is in order to truly understand the ins and outs of taking out a same day loan.
Understanding how quick same day loans work
They are like any other loan but usually only taken out for a short period of time and at a much higher rate of interest. This is usually measured by APR.
What is APR?
APR stands for Annual Percentage Rate.
The annual percentage rate on a loan is the amount the lender would charge if you borrowed the money for a year, as a percentage of the original loan.
For instance at 40% APR, to borrow for a year you'd be charged 40% of the original loan, on top of paying it back.
So if you borrowed $100 at 40% APR for a year, you'd have to pay back the loan plus £$40. So $140.
If you are no maths wizz and you are struggling to understand APR, think of it like this:
When searching for a loan and you see the APR, that figure is essentially telling you how many cents it would cost you to borrow each dollar, per year.
So for instance at 40% APR, on each dollar borrowed you would pay 40 cents a year.
At 400% APR, on each dollar borrowed you would pay 400 cents a year. At 4000% APR, you would pay 4,000 cents or $40 on each dollar borrowed!!!
Understand all of that? Good.
Sore head? Yes, me too!
This video may explain things in more of an easy to understand format.
Limits imposed for online loans with no credit check in Australia
The laws in Australia were changed in 2013 in response to increasingly predatory actions by payday loan providers.
There are now limits in place as to how much a borrower can be charged for small loans under $2,000.
While the exact fee you are charged will vary depending on the amount of money you borrow, credit providers are only allowed to charge you the following:
- 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
- Enforcement expenses (if you fail to pay back the loan, these are the costs of the credit provider going to court to recover the money you owe them).
This payday loan calculator will give you some more accurate information on total costs of a loan.
These new laws have put a stop to the excessive fees levied by providers. Most still charge the most they can get away with. It's a good idea to have a sensible repayment plan in place to ensure you do not get into trouble.
So, are same day cash loans a bad thing?
I honestly do not believe they are. They have bridged a gap in the market to loan to people who could not otherwise secure credit. They operate in a regulated environment and remove the need for people to turn to more drastic measures such as using loan sharks.
Yes, there are some bad apples but the industry is increasingly regulated to try and remove these players from the market.
I consider online loans with no credit check to be an emergency form of finance. A few hundred dollars to see you through to payday to put food on the table. To be borrowed for no more than 2 or 3 weeks.
When you start using them for anything else is where you will start to get yourself into trouble in my opinion.
The problems start to arise when that initial short term loan is not paid back as planned, and the loan gets extended, or rolled over. The interest then builds up rapidly and can soon swamp the size of the original loan.
What do you need to know before taking out a payday loan?
Act responsibly. Set a stringent deadline by which the loan will be paid back.
Even if you borrow $200 for 1 month, you will still be paying back around $250 after 30 days. Make sure you know where that money is coming from.
If you intend to pay it back with your salary or Centrelink payments, then ensure there will be enough after you have sorted out all bills to pay back the initial sum AND interest.
Are quick loans your best option?
They should really only be used as a method of last resort. Have you thought about these alternatives?
Negotiating with your Utility Providers: If you are having trouble paying your monthly expenses, don’t think that you need to immediately run to a cash loan company. Most utility companies have hardship offices who will be able to agree a staged repayment plan with you if you are struggling.
NILS or StepUP Loan – Our article on Loans for People on Centrelink covered these in more details so check it out. Essentially, if you are part of a low income household you may qualify for a no or low interest loan to help pay for essential goods.
Centrelink Advanced Payment - If you're eligible for Centrelink benefits, you may be able to get an advance payment on your benefits, with no interest charges - see the Department of Human Services website.
Checklist for taking out a cash loan
Is a loan the right choice?
First things first, do you really need the loan? Can you use any of the other methods outlined above in order to bridge the gap until pay day or the next Centerlink payment?
The first option should always be to avoid borrowing if you are already in debt. If this is not possible and you need to borrow short amount over a short-term period and you do not have an overdraft or credit card with a lower APR available available, then take the following action.
Check your credit file
Your credit score will have a significant impact on the interest rate you will pay and the loan. Most fast cash payday loan providers will advertise the representative rate of interest, that is not necessarily what you will pay. The worse your credit file the higher the rate of interest.
All rejected credit applications have a detrimental effect on your score. It makes sense to check your credit file first to see whether you are likely to be approved or not.
Can you afford the repayments?
As I mentioned above, it is not only the capital sum that you need to worry about repaying but the interest as well. With a fast cash loan this can be a substantial portion if not more than the original loan amount.
Once you default or fail to repay the principal stun you risk being hit with penalty charges, not to mention damaging your credit file and your chances of being accepted for deals in the future.
Make sure you find the best deal
The fact remains that there are so many payday loan providers out there all competing for your business. The market for online loans with no credit check has exploded in recent years.
If you do decide to go with a payday loan provider shop around and make sure you will find the lowest interest rate with the lowest arrangement fees.
It only takes a few minutes and all you have to do is enter your details online in order to find the best rates.
A good tip is to set up a throwaway email account like Gmail, so when you are asked to input your email you are not bombarded with junk for the next year.
When you find the loan provider that you wish to use you can of course input your real details.
Bad credit same day cash loans do serve a purpose, and since the increased regulation they are no longer the awful products that people make them out to be.
Irresponsible borrowing is what leads to trouble. The most important point to keep in in mind when utilising this form of finance is they should only be taken out for the short term. A payday loan should be seen as just that, and not a long term solution.