1000% loans are ‘cheaper than the bank’

Typical fees and charges on a pay day loan are around $20 to $30 per $100 outstanding per pay period says Lucas Bates, chief executive of Adelaide based online small lender Paydaydirect.com.au. "Fees vary but are generally based on your payday cycle," says Bates "So the borrower gets told what they will be charged per hundred dollars for every fortnight or week that the loan is not paid off."

If you ask for $200 to tide you over until next week, you can expect to repay $240 to $260 back to the lender. That is an effective interest rate of 1000 per cent per year but that is not necessarily unreasonable says Phil Johns, the chief executive of the National Financial Services Federation, the umbrella industry group representing many non bank and pay day lenders. "Twenty five dollars per week is cheaper than the penalty fees a bank will charge you for going into overdraft. Some banks charge $35 if a direct debit takes you account into the red by just $1, so twenty or twenty five per week per $100 is cheap compared to that."

Source: Herald Sun