Family life is always busy, and quite often it’s expensive and stressful as well.
As any mum knows, family expenses seem to come out of nowhere, and a few large and unexpected expenses can make it difficult to make ends meet.
They’re not something you should rely on as part of your normal financial routine, but short term cash loans can be an option when you find yourself in a temporary financial bind.
Despite their reputation, short term cash loans are actually very strictly regulated. In general, Australia has very strong regulations for the finance sector and cash loans are no exception to this.
Cash loans, payday loans, and other types of short term credit are classified as Small Amount Credit Contracts (SACC) and are regulated by the Australian Securities and Investment Commission (ASIC).
The most important part of the regulations is that SACC lenders should not approve loans for people who will not be able to afford the repayments. Responsible lending practices require SACC lenders to check the credit and banking histories of the applicants to ensure that a loan will not cause them financial hardship.
Are cash loans a bad thing?
Not necessarily, they are one of the options you can consider. Cash loans tend to be a more expensive form of credit than credit cards or long term loans such as car loans. However, the benefit of cash loans is that they tend to be faster than getting credit through a bank if you don’t already have access to credit.
Cash loans also work a bit differently to other types of finance. Instead of charging interest at an annual rate like credit cards, cash loans charge an establishment fee, usually 20% of the principal loan amount, and monthly fees, usually 4% of the principal loan amount. There are also fees associated with late payments and defaults.
While this is typically more expensive than other forms of credit, you may be able to get the money from a cash loan on the same day that you apply while credit card applications or application to increase your credit card limit can take up to 10 business days.
So if you don’t already have access to a large amount of credit, a cash loan can be a faster solution when you’re short of cash.
When can cash loans be used appropriately?
While using a cash loan may not be your first choice, there are some situations where they might be appropriate.
Life is full of surprises and, unfortunately, they aren’t always good. For example, if you need emergency car repairs so you still get the kids to school in the morning. A cash loan can help you cover large, unexpected expenses until you get your next paycheck.
When are they inappropriate?
You shouldn’t use cash loans to cover recurring monthly expenses like rent and regular utility bills. If you do, the next month will be even more difficult because you will still need to pay your rent as well as the repaying the loan on top of that.
If you are experiencing financial hardship or struggling with debt, ASIC’s MoneySmart website has a great deal of resources and information that can be very helpful.
Have you taken out a cash loan? Share with us below.