Christmas payday loans can add stress
To get through Christmas this year, Jodi Green may have to rely on a loan from a payday lender. ‘‘I want to give my 10-month-old and 14-yearold Christmas and just can’t stretch it without help,’’ she said.
‘‘On top of that, I have a tumour on my tongue about to be removed and need to pay my daughter’s daycare lady while I’m in hospital.
‘‘I know my daughter said she doesn’t care but I have been absent and this year meant so much.’’
Green said she wanted to be able to buy her daughter on her ‘‘wish list’’ but that was things such as a mobile phone, branded clothes or new make up.
‘‘I mean, I can go to Salvation Army, they are doing a food parcel up and a present for me, but I guess I feel it won’t be off her wish list and I really want her to have a good day ... she has gone through so much.’’
Green is on a benefit and said loan repayments would be difficult. She would like a loan of about $400.
‘‘With not the greatest credit, my options aren’t great and will be very high interest.’’
She plans to go to Pretty Penny, which has interest rates of 365 per cent per year.
‘‘They have given me one before – I believe it cost me nearly four times what I borrowed though … I have also been told to look into Cash Converters.’’
Waikato mother Celena Tommo is also relying on credit this Christmas – she has opted to top up a loan she has with Aotea Finance to buy presents.
She has a limit of $1500, and is charged 22.95 per cent interest. Tommo is making payments of $80 a week and had nearly paid it off when she had to reborrow. ‘‘I have a big family.’’
But there’s a warning that relying on loans, particularly from high-interest lenders, can quickly get out of hand.
Tom Hartmann is personal finance editor at the Commission for Financial Capability.
He recently conducted research on the cost of borrowing and found payday lenders were, on average, charging interest rates of 468 per cent a year.
Lenders point out that their loans are short term, but even so, the daily interest rate is often about 1.5 per cent, per day.
‘‘A $100 loan repaid after two weeks would be $121,’’ Tim Barnett, chief executive of the chief executive of the National Building Financial Capability Charitable Trust, said.
‘‘Before even thinking seriously about this, consider that if you have to borrow $100 or $500 now, whether you are likely to have $121 or $605 in a couple of weeks, to fit in along with your other commitments, to pay the loan back. If you aren’t absolutely sure of that, things could start to side fast and Christmas will be only a distant memory.’’
Hartmann agreed borrowers had to understand what they were committing to.
‘‘You get into trouble with these if you can’t repay,’’ Hartmann said. ‘‘They very often just let you borrow more so you dig yourself a deeper hole and it’s difficult to get out of it.’’
People would sometimes get into the habit of going back to solutions that had worked in the past, such as payday loans, Hartmann said. ‘‘It’s incredibly expensive and hard to get ahead.
‘‘You do yourself harm to your financial situation. The message is to find alternatives at all costs.’’
He said people who were worried about Christmas shopping could choose new payment options such as AfterPay, PartPay and LayBy, which allow shoppers to take goods immediately but pay them off over a period of weeks, without interest or associated fees.
Barnett said family and friends were another option.
‘‘It’s possible they could spare $100 or $200, and may not charge you interest, but be sure to have a repayment plan sorted, and stick to it. Banks are unlikely to lend the sort of amount you might need for Christmas, or at least they will try and dissuade you,’’ he said.
‘‘A typical personal loan carries a $250 establishment fee, which isn’t worth it if you’re borrowing a few hundred dollars plus the interest is maybe 17 per cent to 18 per cent.
‘‘A bank overdraft would work much better. For example, at Westpac the interest rate is 13.95 per cent per year if you keep within your arranged limit, along with $5 per month line of credit charge and a one-off fee of $25 to set the overdraft facility up.’’
Barnett said it was worth people considering whether they actually needed the money at all.
‘‘If it’s the cost of Christmas that is doing your head in, you could scale back the presents, ask others for contributions for the Christmas meal, and plan low-cost outings over the break,’’ he said.
‘‘It’s the home-made pleasures which will create the best memories.’’
"I want to give my 10-month-old and 14-year-old Christmas and just can't stretch it without help."
Jodi Green