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Are Payday Lenders Bad?

Why lenders have a bad name, are they registered, legitimate and legal?

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No. Payday lenders are not ‘bad’ per se. It’s the nature of payday loans that has perhaps created this perception about payday lenders.

Payday loans themselves can be bad for you if you are habitually given to poor money management. That doesn’t, however, make payday lenders bad. All the payday lenders that we connect you with at Viva Payday Loans are duly registered with the ASIC and have impeccable industry reputations. That said, we encourage you to get to know your lender better by carrying some basic online research and having a brief look into their reputation and certifications.

How do I know if a payday lender is registered?

All payday lenders are regulated by the Australian Securities and Investments Commission (ASIC). As a part of this process, all registered payday lenders are required to mention their registration details, including Credit Licence Number. You can verify this number with the ASIC by contacting them through their website. Some payday lenders are also associated with the Credits and Investments Ombudsman, a governmental service that presides over the jurisdiction that oversees all credit and investment disputes.

I noticed that there seems to be a rather negative air about payday loans in the media? Why is that?

The very reason that the portrayal of payday lenders in the media has suffered is the popular idea that payday lenders charge exorbitant interest rates.

Admittedly, payday loans are more expensive than bank loans. But, the conversion of bi-monthly or monthly interest rates into annual percentage rates as per the ASIC norms is what makes the interest rates ‘appear’ much higher. It should be noted that most payday lenders charge a fixed monthly interest rate of no more than 4% (excluding the establishment fees), a competitive figure in today’s lending market.

Another major reason why payday loans are often depicted to be difficult to pay off is continual mismanagement of funds on the part of the debtor. Some debtors neglect the proper ‘alignment’ of their payday with the repayment schedule. There are also some debtors who apply for payday loans without being fully confident that they will be able to pay the loan back on or before the due date. Such experiences create this ‘negative’ air about the payday loans.

I know that banks used to back payday lenders earlier, but they don’t seem to be doing that a lot these day. Why is that?

Yes, many banks used to fund payday lenders back in the day. However, before 2010, payday lenders were not under the jurisdiction of the ASIC, and hence to have some regulation over their activities, banks needed to get involved. Since then, the ASIC has brought all payday lenders under its jurisdiction, making obsolete the need to have regulated financial institutions (banks, in this case) play the role of a mediator.

That said, there are still some banks that back certain payday lenders.

Do payday lenders use unethical/illegal means to settle the loans?

No, absolutely not.

Payday lenders are registered and authorized lending partners for the people. In a way, they are no different to other financial institutions in the country, like banks or credit card companies. Being registered with the ASIC and local as well as state level financial regulators, it is required by the law that payday lenders follow all relevant norms, acts, laws and rules of jurisdiction. In simple terms, payday lenders do not and cannot resort to unethical/illegal means to settle the loans.

What would the response from a payday lender be if I fail to pay my loan back?

Most payday lenders will allow you to arrange for funds in order to repay the loan for a certain ‘grace’ period (varies from lender to lender). This period is, in most cases, not free of interest.

However, despite this, if the loan is not paid back, payday lenders can initiate a legal enforcement (settlement via court directives). Things come to such a passé only in a handful of cases.

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