If you’re feeling the Christmas crunch, all the ads for understanding and so-easy ‘get-money-now’ services may well have you thinking: “I could borrow a bit – just this one month.”
Well stop! Rather than being your superman-esque saviour, or even a short-term solution, it’s a financial disaster waiting to happen.
Industry experts more accurately call ‘payday lenders’ loan sharks… because they’re straight up predators.
What their enticing advertisements leave out is that fees and charges typically mean a cost equivalent of 112 percent to 407 percent interest over a year.
Meanwhile, there are loans available to people in need that are genuinely interest-free. But I’ll get to that.
Often offering an instant lump of up to $2000 for periods of 16 days to 12 months, payday lenders usually levy an astronomical establishment fee of 20 per cent of what you borrow.
And on top of this, there’ll be a monthly 4 percent.
But here’s the even scarier thing: because these exploitative operators don’t technically charge interest, they aren’t subject to responsible lending obligations. This means they can advance money to people who can ill afford it, potentially sending them into a debt spiral.
Crackdown in time for Christmas
But a promised government crackdown has been inexplicably, irresponsibly slow. Until this week.
Mooted by the Coalition way back in November 2016, a Labor bid to force it through before this year’s election ran out of time. However, the opposition has now joined forces with the Centre Alliance to get the bill, which mirrors a Coalition draft, once again tabled in parliament.
In it is the sensible proposal to impose a 10 per cent cap on how much of a borrower’s income these so-called ‘small amount credit contracts’ can eat up (Note: this includes consumer leases).
Payday lenders would also be banned from making unsolicited offers to try and entrap people into borrowing more and more.
That’s to be welcomed because the average loan size has spiked up dramatically, from $502 to $948, says a recent Senate report into credit targeted at the financially disadvantaged.
Today, more than 1000 new families a week are turning – in desperation – to payday lenders, according to a study by Digital Finance Analytics.
What’s worse, in the past two years, usage by women has jumped 22 percent… and 40 percent of all female victims – I think the word’s fair – are single parents.
It’s all prompted the formation of a national coalition of consumer advocacy organisations, calling itself the Stop the Debt Trap Alliance. That alliance now forecasts that Australian payday loans will spike to a staggering $1.7 billion by the end of 2019… as the festive frenzy only adds to the financial pressure.
The far better option than payday loans
Bringing it closer to home, to your home, if you are unfortunate enough to have what I call a “Holy Sh*t” money moment this Christmas, the last thing you should do is let a loan shark ‘swallow’ your future.
Or, if one of your whitegoods breaks at the most expensive time of the year, allow a rent-to-buy rort to trap you into paying many times the item’s straight replacement cost.
Instead, you should look up something called the No Interest Loan Scheme. Yep, it’s as good as it sounds because it’s a charitable initiative co-ordinated by the good people at Good Shepherd Microfinance.
You’ll be eligible if you earn less than $45,000 after tax and hold a Health Care Card or pension card. The scheme is explicitly designed to help you out if say, your washing machine or fridge carks it, or you find you can’t pay a crucial bill.
It will cover the cost of a bill or essential good of up to $1500. You can repay the loan over the next 12 to 18 months — and there is not a cent of interest.
You can arrange the loans through 160 different community organisations at 625 locations across Australia.
Then your first new year priority should be to slowly build an emergency or Holy Sh*t fund, even if you do it at $10 a week, of ultimately six months’ salary.
So, Christmas or not, you’re never financially vulnerable again.