Payday Loan Fees: What You’ll Really Pay

A payday loan can look straightforward when you focus on the amount being deposited into your account. But what you borrow and what you ultimately repay can be very different amounts.

In Australia, payday loan fees can include an establishment fee, monthly fees and additional costs if you miss a repayment. Even where the individual charges fall within legal limits, they can make a relatively small loan significantly more expensive.

In this guide, we explain how payday loan fees work, show some simple cost examples and outline what to check before accepting short-term finance. We’ll also explain how the fee structure differs from the wage advance service we offer through MyPayNow.

What are payday loan fees?

In Australia, what is commonly called a payday loan is generally a Small Amount Credit Contract, or SACC.

A SACC allows you to borrow up to $2,000 for a period of between 16 days and one year. Moneysmart confirms that the maximum establishment fee is 20% of the amount borrowed and the maximum monthly fee is 4% of the amount borrowed.

The main permitted charges can include:

• An establishment fee of up to 20% of the amount borrowed

• A monthly fee of up to 4% of the amount borrowed

• A default fee if you fail to make a repayment

• Certain government fees, charges or duties

ASIC has also confirmed that SACC providers are restricted in the types of fees and charges they can impose.

Importantly, the monthly fee is based on the amount originally borrowed rather than your remaining balance. Moneysmart’s payday loan calculator assumes a monthly fee can apply for each commenced month of the contract.

That means the length of the loan matters. A longer payday loan can result in significantly higher total fees.

How much does a payday loan really cost?

A simple way to understand the basic cost is:

Amount borrowed + establishment fee + monthly fees = total repayment before any applicable default costs

For example, on a $2,000 payday loan:

• Amount borrowed: $2,000

• Maximum 20% establishment fee: $400

• Maximum 4% monthly fee: $80 per month

If only one monthly fee applied, that would bring the amount to $2,480 before any other permitted costs.

But that does not mean every $2,000 payday loan costs $2,480.

The monthly fee can apply for each commenced month. Moneysmart’s current example estimates that repaying a $2,000 payday loan over one year could result in total repayments of about $3,360, which is $1,360 more than the amount originally borrowed.

Payday loan fee examples

The table below shows how the maximum establishment fee and one maximum monthly fee would affect several loan amounts.

These examples use the maximum establishment and monthly fee limits described by Moneysmart. They do not include additional monthly fees that may apply over a longer contract, default costs or applicable government charges.

Your actual contract may charge less than these maximums, so always check the lender’s written disclosure and total repayment amount.

Do payday loans charge interest?

Small Amount Credit Contracts work differently from many conventional personal loans.

Rather than focusing on an ordinary annual interest rate, the SACC cost structure centres on regulated establishment and monthly fees. ASIC’s current guidance confirms that the permitted charges include establishment, monthly and default fees, along with applicable government fees, charges or duties.

That is why seeing a payday loan described without a conventional interest rate does not mean borrowing is free or inexpensive.

The more useful figure to compare is the total amount you will repay in dollars.

What happens if you miss a payday loan repayment?

Missing a repayment can make an already expensive form of borrowing more difficult to manage.

A payday lender may charge a permitted default fee when a scheduled repayment is not made. Moneysmart also notes that there is a legal cap on what you can be charged if you default.

If you think you will struggle with a repayment, contact the lender as early as possible and ask what hardship or repayment options are available.

Ignoring the problem can make it harder to resolve.

Moneysmart also states that repayments on a payday loan must be no more than 10% of your after-tax income over the repayment period.

Even with that protection, it is worth checking your own budget carefully before borrowing. A repayment may fit within a regulatory limit but still leave less room for rent, groceries, transport and other essentials.

Why a small percentage fee can still add up

Percentages sometimes make borrowing costs look smaller than they feel in dollar terms.

A 20% establishment fee, for example, represents:

• $40 on a $200 loan

• $100 on a $500 loan

• $200 on a $1,000 loan

The monthly fee is added separately.

Repeated borrowing can also increase your overall cost because a new contract may involve a new establishment fee and new monthly charges.

This is one reason we believe short-term finance should be considered carefully rather than treated as a routine way to fund recurring household expenses.

Before using any form of short-term borrowing regularly, look at what is driving the gap between your income and expenses and whether another solution may be more sustainable.

What should you check before accepting a payday loan?

Before signing a contract, make sure you understand exactly what the loan will cost and how the repayments fit into your budget.

1. The total amount repayable

Do not look only at the amount you receive.

Check the total of all scheduled repayments across the entire loan term.

2. The establishment fee

Convert the percentage into an actual dollar figure.

For example, a 20% establishment fee on $500 is $100.

3. How many monthly fees will apply

Because payday loan monthly fees may apply for each commenced month, the contract length can materially change the cost.

Moneysmart gives the example that a loan lasting 70 days may involve three monthly fees.

4. What happens if you miss a repayment

Read the default provisions before accepting the loan.

You should know what costs may apply and what options you have if your circumstances change.

5. When repayments will be taken

Check the repayment dates against your actual pay cycle.

Then work out what will remain for rent or mortgage payments, food, transport, utilities and other essentials.

6. What your next payday will look like

Short-term borrowing commits part of your future income.

Rather than asking only, “Can I make this repayment?”, it can be more useful to ask, “What will I have left after I make it?”

Payday loan fees versus our MyPayNow wage advance fees

Our product is a wage advance service. Its pricing and repayment structure differ from the SACC fee structure described above.

With us, eligible customers can access up to one-quarter of their net pay, capped at $2,000. Your available limit is based on identified employment income and our assessment and eligibility requirements.

Our current pricing is:

• A 5% fee on the amount advanced

• Interest at 24% per annum on the outstanding balance

• Interest capped at 62 days

Our current published example shows that a $100 advance repaid after seven days would include:

• Advance: $100

• 5% fee: $5

• Interest: approximately $0.48

• Total repayment: $105.48

For the same $100 advance held for 28 days, our stated total repayment is $106.93.

Our current website also states that we do not charge missed-payment, late-payment or direct-debit fees.

The two products should not be treated as interchangeable. Their costs, eligibility requirements and repayment arrangements work differently.

You can review the current cost examples and repayment information in our MyPayNow FAQs or read more about how our wage advance service works.

Are payday loans the right option?

There is no single answer that applies to everyone.

Before borrowing, look at the purpose of the expense, the total cost and whether repaying the money will leave enough income for your other commitments.

Alternatives may include:

• Using available savings

• Asking the bill provider for an extension or payment plan

• Delaying a non-essential purchase

• Checking whether a No Interest Loan may be available

• Checking whether you qualify for a Centrelink advance

• Asking a creditor or service provider about hardship assistance

• Speaking with a free financial counsellor

Moneysmart currently lists No Interest Loans, Centrelink advance payments and negotiating bills as alternatives worth considering before a payday loan.

Services Australia also confirms that eligible people receiving certain income support payments or Family Tax Benefit may be able to receive part of their payment early and repay it through later payments.

What about using a wage advance instead?

A wage advance also needs to be considered in the context of your future income.

Moneysmart describes pay advance services as products that allow you to access money before your next payday, with repayment generally linked to a later pay cycle. It also warns that the cost can add up when pay advances are used repeatedly.

That principle matters with our service too.

An advance means part of your future income has already been committed. Before requesting one, consider what you will have available after repayment and whether your essential expenses will still be manageable.

You can learn more about our service in our current wage advance guide.

How to compare short-term borrowing costs

Three questions can make comparison easier.

What will I receive today?

Start with the amount actually being transferred to you.

What will I repay in total?

Include every applicable fee and interest charge across the period you expect to hold the advance or loan.

What will I have left afterwards?

Calculate your expected take-home pay after repayment, then subtract your essential expenses.

This final question can be just as important as the advertised fee.

A product with a smaller headline charge is not necessarily suitable if its repayment timing creates another cash-flow problem.

When to seek help instead of taking another loan

Taking on more borrowing may not resolve the problem if you are already having difficulty covering essential living expenses or are relying on one form of credit to repay another.

Some signs it may be time to pause and seek support include:

• Borrowing before most paydays

• Regularly using credit or advances for groceries or rent

• Missing repayments across several accounts

• Applying to several finance providers at the same time

• Having little or no room in your budget for the next repayment

Free financial counselling is available through the National Debt Helpline. Its financial counsellors provide free, confidential and independent assistance, and the current phone number is 1800 007 007.

If you already have an advance with us and are concerned about your repayment, please contact our customer support team as early as possible. Depending on your circumstances, our current account features may allow you to request a split or delay to your repayment.

Frequently asked questions

What is the maximum establishment fee on a payday loan?

For a Small Amount Credit Contract in Australia, the maximum establishment fee is generally 20% of the amount borrowed.

That means a $500 payday loan could have an establishment fee of up to $100.

What is the maximum monthly fee on a payday loan?

The maximum monthly fee is generally 4% of the original amount borrowed.

On a $500 payday loan, that would be up to $20 for each applicable month.

Are payday loans interest-free?

SACCs use a regulated fee structure rather than the ordinary interest structure you may associate with a personal loan.

That does not mean they are free. Establishment and monthly fees can make the overall cost substantial, particularly over a longer contract.

Are wage advances the same as payday loans?

They have different product structures and pricing models.

Moneysmart separately describes payday loans and pay advance services, while our current site describes our product as a wage advance service.

Do we charge a 20% payday loan establishment fee?

No.

Our current pricing does not use the SACC 20% establishment-fee structure. We charge a 5% fee on the amount advanced plus interest at 24% per annum on the outstanding balance, capped at 62 days.

Can I reduce costs by repaying early?

That depends on the product.

For any payday loan, check the contract and ask the lender how an early payout is calculated.

With our wage advance, interest is calculated on the outstanding balance and is capped at 62 days. Our current Target Market Determination also confirms customers can pay an advance out early.

Understand the cost before you commit

Payday loan fees can add a significant amount to what you originally borrow, particularly when a contract runs for several months.

Before accepting any short-term finance product, look at the full repayment amount, when the money will be deducted and how much income you will have left for essential expenses.

With us, eligible customers can access up to one-quarter of their net pay, capped at $2,000. Our current pricing is a 5% advance fee plus interest at 24% per annum on the outstanding balance, capped at 62 days. Access is subject to our assessment and approval.

Before requesting an advance, we encourage you to review the costs and repayment arrangements and consider whether it is appropriate for your circumstances. Repeated use of short-term finance can reduce the income available on future paydays.

The information provided in this blog is for general informational purposes only and does not constitute financial advice. It is not tailored to the specific circumstances of any individual. Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs.