News Room

What’s Going on in Payday Lending?

Written by:

Jeanette Severs


November 3, 2020

Last updated

August 12, 2022

Reading time

5 minutes

Jeanette Severs

Payday lending is in the news again, for all the wrong reasons. On one hand, it’s criticism of some media outlets for producing what’s claimed to be thinly veiled promotions of payday lending, masquerading as news items. That’s measured against a recession biting into individuals financial viability and a casual employment economy that has been revealed as the underbelly of COVID-19.

With everything going on at the moment, it’s hard to pin down exactly what’s going on in payday lending. So, let’s break down the basics and look at some of the key issues the industry is facing.

What is a payday loan?

A payday loan is a short-term unsecured loan with high interest rates that can be spent on personal purchases. Traditionally, payday loans required you to repay the full balance of your loan on your payday. Yet today, they can refer to loans that align repayments with your pay cycle via direct debit arrangements.

Australian standards and rules

In Australia, short term loans (less than 16 days) are banned. Instead, most payday lenders offer loans over, on average, seven weeks. Since 2013, unsecured loans for $2,000 or less, borrowed for a period of at least 16 days and up to a year, are termed Small Amount Credit Contracts; and are subject to special rules in Australia.

Costs typically include an establishment fee of 20% and a monthly fee of 4% of the amount loaned. A payday lender can also charge enforcement costs, any applicable government fees or charges, and default fees to a maximum amount of twice the amount loaned. Applying for a loan is easy, using mobile technology.

Australia’s watchdog, ASIC, provides a payday lending calculator on its website, to help people understand the amount of money they will be liable to repay.

Some facts and figures

A coalition of more than 20 consumer advocacy organisations from around Australia launched Stop the Debt Trap in August 2019, an alliance calling on the Federal government to implement stronger laws to protect Australians against payday lenders.

Digital platforms have enabled online payday loans to grow from 5.6% to just under 90% over the last 10 years.

Between April 2016 and July 2019, just over 4.7 million individual payday loans have been written, worth approximately $3.09 billion, and taken on by around 1.77 million households.

In May 2020, the ABC reported the financial crisis created by COVID-19 lockdown restrictions and unemployment led to calls for stricter controls to be placed on payday lenders. Particularly after financial counsellors reported a spike in targeted messaging this year.

But Haydn Cooper, president of the Financiers Association of Australia, said a focus on the ‘bad seeds’ of the industry, exaggerated the problems with payday loans by drawing attention to extreme cases.

He said the turnover of new loans by small, short-term lenders, had actually decreased by 30% during the COVID-19 lockdown measures in Australia.

Are short-term loans all bad?

In recent years, dodgy practices by lenders like Cigno have given the personal loans industry a bad reputation. Yet, of course, not all lenders are bad. Given the strict regulations enforced by industry regulator ASIC, some will conduct an extensive amount of due diligence before lending.

When considering ‘payday loans’ you should be mindful of what the provider is offering. Promises of no credit checks and instant approvals sound too good to be true, because they often are. Some questions you can ask when comparing lenders include:

  • Are they showing a valid Australian Credit Licence (ACL)?
  • Do they have an Australian address and/or phone number?
  • Do they enquire after your previous credit history (i.e. through credit checks or bank statement assessments)?
  • Are they claiming to ‘guarantee approval’ or offer ‘instant approval’?
  • Do they have a Dispute Resolution Policy and Complaints process?

Alternative finance options

Ultimately, short-terms loans are not a suitable option for everyone. If you are experiencing financial hardship, you may wish to consider alternative financing options.

The No Interest Loan Scheme (NILS), a community-focussed initiative administered by Good Shepherd, provides access to no-interest credit to pay for household items, medical and dental bills, education expenses, or vehicle costs, with repayments scheduled over 12 to 18 months.

The Department of Social Services service directory lists community organisations that provide Emergency Relief services to help people in financial crisis.

People receiving Centrelink benefits can apply to the Department of Human Services for advance payments .

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Struggling with debt?

The National Debt Helpline (1800 007 007) administered through the community Financial Rights Legal Centre, is focussed on helping consumers with free legal advice and financial counselling, and referral services, for credit, debit, and banking issues. Contact them for support today.


Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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