Yes, you may still be able to get a payday loan if you have bad credit from some credit providers, but it’s essential to understand how they work, the risks, and possible alternatives.

This guide helps you evaluate if a payday loan is truly the right choice for you.  

In this guide, we cover: 

• What is a payday loan? (Also known as ‘Small Amount Credit Contracts’). 
• Can I get a payday loan if I have bad credit?  
• Challenges and risks. 
• About payday lenders.
•  What else can I do? Alternatives. 

Payday loans are short-term loans that are unsecured (they do not require details of an asset to be provided as security for the loan, such as property or a car). These loans have a credit limit up to $2,000 and a loan term between 16 days and 12 months. Payday loans can be helpful to some people in some circumstances but it’s important to know that they are often very expensive/high cost.

They are called payday loans because the original idea was that borrowers would pay the loan back when they got paid next. But often that is not how it works, and borrowers may end up with the debt hanging around for longer than they expected and paying a lot more than they borrowed once all of the fees and charges are added.

Payday loans often mean that funds are available same day, and can sometimes be appealing when money is required quickly.

The simple answer is yes, some lenders do offer loans to people with a bad credit history. 

Lenders may check your credit history which includes your credit report and sometimes your credit score. They must also look at your last 90 days of bank transaction information to check for other current or past payday loans, income, expenses and other information. 

But it’s not all plain sailing. It’s crucial to approach these bad-credit payday loans with caution. While getting access to a bit of credit may seem like a solution, it can raise concerns if repayments become overwhelming.  

Let’s see the risks involved. 

What are the risks attached to these types of loans?

High fees can add up quickly 

These loans don’t charge interest in the same way as other loans. Instead, the lender can still charge an establishment fee of 20% of the amount borrowed, and a monthly fee of 4%. Those fees can be quite high so that the lack of interest definitely doesn’t mean the loan is low cost. 

That fee structure is one of the main reasons the total cost can be much higher than people expect.  

There may also be late fees applied if payments are missed, which can quickly add up, especially if you are making payments over shorter timeframes (i.e. weekly or fortnightly). 

Repayments can put pressure on your budget 

Repayments on a payday loan must be no more than 10% of your after-tax income over the repayment period, and even at that level, repayments can make it harder to keep up with rent, groceries, transport or bills. 

You may end up borrowing again 

When repayments become difficult, it can be tempting to take out another loan just to get by. This cycle, according to the National Debt Helpline is a key reason, why payday loans are difficult to escape once multiple loans accumulate.  

The short repayment period and higher fees may place further strain on your financial position, resulting in needing to take out additional loans. 

For payday loans with longer loan terms, there may also be additional pressure if an unexpected event happens before it’s paid, which again make it tempting to take out another loan.

What else can I do? Alternatives to consider 

It is important for you to explore other options that might be more helpful to your financial situation, including: 

• If you are struggling with your existing debt or loan payments, you can ask your bank or lender to help you (rather than taking out a new payday loan). 
• If you can't pay your electricity, gas, phone or water bill, contact your service provider straight away. They have hardship assistance options they can explain to you.
• Access free financial counselling services, such as National Debt Helpline. ASIC's MoneySmart website also contains a list of free counselling services. You can also visit our section on ‘Financial Hardship Assistance’ for further information. 
• See if you might be eligible for a No Interest Loan from Good Shepherd, Each and The Salvation Army which helps you borrow money quickly to pay for unexpected repairs or household essentials like appliances and furniture. 

Steps to improve your credit health 

In other words, instead of locking yourself into a high-cost loan, it’s better to get your credit health back on track. It’s not as quick, but it’s worth it in the end.  

Not only could you get a better deal on your loan, but the steps you can take are great for establishing healthy financial habits for life.  

Over time, as your credit record improves, you’ll start enjoying greater access to loans at a much more reasonable rate. 

Stay on top of your payments 

Paying your bills and loans on time is one of the best ways to protect your credit health. Your credit report shows a 2-year history of how you manage repayments, so staying up to date — or getting back on track — can make a big difference. Set reminders or automate payments to help you consistently pay on time. 

Ask for help early 

If you're finding it hard to keep up with repayments, contact your lender. They may be able to offer support before things get worse. 

Only apply for credit when you need it 

Opening too many credit accounts at once can raise red flags for lenders. All credit applications stay on your report for five years, so apply wisely.