Real Stories: Why payday loans might not be a good idea

Darren's Story:

Darren usually lived within his means but one month he had an unexpected car repair bill as well as a good friend's wedding to attend. He saw an ad for a short term loan which seemed perfect to just cover $500 for about two weeks until his next pay.

While he managed to pay back that first loan, including a surprisingly large $120 of additional charges, he was offered further loans by the company via text message. This made it very easy to borrow again a month later when some other minor expenses fell due and Darren was just a bit short of cash.

But that next month he could not repay the loan and felt he had no option but to take a new loan to repay the old one. Month after month the cost of the loans kept snowballing as the high charges began toadd up. Within a year he was $1,736 in debt and couldn’t work out how to pay it.

Luckily for Darren, he received a $1,522 tax refund in August, which he had been hoping to use for a holiday with his friends. Darren made the tough but smart decision to skip the holiday and sunk his whole refund into paying back his debt. With some additional funds from his parents as an 'early birthday present' he was able to pay out the loans in full.

After that, he made a commitment not to go back to Payday lending. Instead he committed to a modest savings plan to allow a small safety net for any unexpected expenses, as well as a holiday for next year!

“The convenience – how easy it was to borrow the money – just made it so dangerous for me. I just got caught in a cycle of taking the money I couldn’t really afford. That first small loan cost me my annual holiday!”

For more details of why payday loans are not a good idea, listen to our podcast Why A Payday Loan May Not Be A Good Idea, where Better Place Australia financial counsellor, Christine, unpacks what payday lending is and the traps to watch out for.