The most notable feature of payday lending is that payday loans have enabled almost every adult Australian with a reliable funding option that they can turn to during emergency.
Payday lending is a fairly popular practice in Australia. It is widely believed that payday lending is one of the fastest growing credit markets in the country. Over the last five years, on an average, the payday lending market in Australia has consistently grown at an annual rate of 9% or more. In the financial year 2014 alone, the market crossed $400 million mark.
Contrary to a popular belief, borrowing money from duly registered payday lenders is very much safe!
Considering this huge market potential, an obvious question comes to mind: Who are payday lenders?
To put it in simple terms, payday lenders are small financial institutions that specialize in disbursing ‘small loans’ (less than or equal to $2,000) over ‘short terms’ (shorter than 30 days but longer than 15 days).
Since 2012-13, it has been made mandatory for all payday lenders to get their businesses registered with the Australian Securities and Investments Commission (ASIC) so that they can be brought under the jurisdiction of a variety of credit laws that the ASIC oversees. This move has made every payday lender in Australia accountable to the ASIC, and in turn, all payday loans safer for general public.
Payday lending businesses work in a way that is no different than how all other financial institutions, say banks, work. They need capital to establish the business, governmental registrations and approvals to run the business and resources to stay in profit. Payday lenders often operate through a variety of media – from conventional brick and mortar establishments to modern internet based operations.
The very essence of payday lending business is the ease with which they can approve loans to applicants. To be able to maintain this ease of operations, payday lenders regularly need to take financial risks (‘high risk lending’), a fact that reflects in the interest rates charged by payday lenders.
A popular perception, albeit a thoroughly wrong one, that common public has of payday lenders is that of ‘high interest opportunists’. The reality of payday lending couldn’t be farther than that.
Payday loans, no doubt, are charged much higher interest rates than bank loans. But the fact that the ‘time value of money’ (opportunity cost) is associated with these loans is often overlooked.
Another very common misconception about payday lenders is that the business of payday lending lies in that dubious grey area as far as legality of it concerned. The fact, however, is that payday lending is a completely legalized industry that operates in full compliance with every applicable law and norm.
Many people have unfounded beliefs based on rumours that payday lenders resort to any means necessary in order to extract payday loans that they have granted. Again, it’s a false preposition and needs to be clarified.
The refurbished Credit Norms of 2013, as announced by the ASIC, bring all payday lenders (and similar lending institutions) under the following laws:
Back in the day, when older credit regulations were applicable, a number of Australian banks used to financially back payday lenders. In a way, this was in accordance with the policy of ‘financial inclusion’ that various governments have adopted over the years.
However, the recent overhauls in credit regulations mean that banks cannot directly engage with payday lenders as financial backers, since payday lenders are registered as independent financial institutions.
Before applying for any payday loan, it is strongly advised that the authenticity of payday lenders you are applying to be checked. There are some easy ways of verifying the authenticity of payday lenders:
In addition, a simple online research can help you assess the veracity of claims made by lenders, their industry reputation and their customer service.
To give our readers an idea about who the leading payday lenders in Australia are, here’s quick rundown of top 3 payday lenders in Australia:
Nimble Short Term Loans (popularly known as ‘Nimble’) is probably the best known payday lender in Australia. Established in 2005, the company has really grown in stature and popularity by offering highly flexible and no-credit-check loans to thousands of Australians over the last decade.
Sunshine Short Term Loans is a registered member of the National Credit Providers’ Association. The company is based in Surfers’ Paradise, Queensland and is best known for their instant loan application reviews.
NiFerratum Australia, owned and operated by theFerratum Group, is another popular payday lender. Ferratum Group presently operates in over 20 countries around the world as a ‘mobile loan provider’. Ferratum Group has recently managed to receive a banking license in Australia, making their payday lending arm all the more safe and reliable to engage with.