Payday Loans: Genuine personal loan alternative?

Usually associated with dodgy pawn shops, shady loan sharks and accompanying astronomical interest rates, Payday Loans are seeing a serious makeover.

In the last few years there has been a major change in the Payday Loan market. Traditional legitimate lenders like NAB have recognised that there is a need for short term based loans and have entered the short term loan market on a test basis. The personal loans industry, it seems, is in a significant transition.

Payday lenders: Pushing the personal loan industry

One of the most interesting developments in the personal loans market is the fast cash solution offered by newer innovative businesses such as Cash Doctors, which has quickly become Australia’s largest online Payday lender. Affordable, convenient short term small cash solutions are literally revolutionising how we borrow – and the debt that follows.

In the digital age, with people doing their shopping and banking online, there’s no reason why we shouldn’t be able to apply for and manage a short term cash loan via the Internet also. New online lenders are redesigning the landscape by offering easy to obtain and easy to manage finance solutions. One by-product of this development is extra pressure on traditional larger lenders to keep up with the Joneses – essentially by improving customer service and their range of product options.

Many of the new breed of online lenders offer borrowers an extremely quick application process and cash payouts in less than an hour. It would be easy to assume that these companies lend to everybody and don’t perform credit checks but that’s not the case. You might be surprised to find that full credit checks and personal detail verifications are performed and most customers that borrow from these lenders are prime or near-prime borrowers.

Rather than simply applying a revision of the existing system, these new lenders have effectively started from scratch, rethinking consumers’ short term loan needs and building products accordingly. The effectiveness of this process is clear, with a number of new lenders springing up on the Australian market, including Dollars Direct, Cash Today and Aussie Payday Loans. Of the evolution, Greg Ellis, co-founder of Cash Doctors, says, “Moving to a completely online based process was the first step. Running automated credit checks and quick payroll calls to verify clients’ personal details has also been part of speeding up the application process."

When a Payday Loan is the right option

Conventional personal loans are still the cheap option for borrowers who are after larger amounts of cash for a long period of time. However as a short term solution these traditional products have never been great value. Given this fact, the new option of convenient online short term loans is certainly food for thought. With the loan amount tailored to a customer’s needs, the short application process, and cash transferred in just 60 minutes the solution certainly offers a compelling argument.

It’s true that, compared to traditional personal loans, Payday Loans are more expensive, however there are some things to consider. Payday Loans only run for a few days or weeks, so as with any short term service (consider a short distance in a taxi for example) certain fees are bound to apply in order for operators to realistically afford to offer this service. The fees aren’t cheap sometimes – after a first loan with a flat fee of just $2 (extremely reasonable), Cash Doctors provides additional loans for a $50 advance fee and $25 per week. However, considering how expensive credit card borrowing can be - and how quickly we all can take on large credit card debt with crippling fees these days – it’s worth seriously weighing up the two.

Payday Loans have certainly made their mark as a genuine alternative to credit cards and large personal loans. As with any finance product, it’s crucial to match the loan to your needs – you should always be aware of all and any details regarding fees and rates for all borrowing you undertake. Before reaching for your credit card, consider that Payday Loans can work out to be a less costly solution in the right circumstance.