Need cash? Apply online 24 hours a day, anywhere in Australia.

• Home
• Apply now
• How it works
• Costs
• FAQs
• Testimonials
• Blog

Debunking short-term lending myths

A lot of confusion and misunderstanding surrounds short-term lending.

Industry critics look at Annual Percentage Rates (APRs) and deduce that short-term lenders profit abnormally from ‘predatory’ lending practices at the expense of the welfare of vulnerable consumers who have no other financial options.

Sometimes critics are right. We hear horror stories about lenders within the industry who provide the product in an unethical way...

• They let a short-term solution go on for too long.
• They lend to people who cannot afford to borrow.
• They lend more than people can afford to repay.
• Their costs are deliberately vague and hard to understand.

Inevitably after these bad lending practices, people run into repayment problems. So what do these lenders do? They charge sky high fees for a long time so it spirals out of control, then they collect aggressively.

The Cash Doctors short-term lending model is totally different.

In 2005, the founders, Greg Ellis and Sean Teahan, identified a need in the lending industry. They wanted people to have a fresh alternative. They went on to create a responsible, transparent service to the Australian working community that was neither available in the mainstream credit market nor the incumbent fringe lending and pawn broking market.

Cash Doctors helps thousands of people with a totally new way of borrowing small amounts of money for a short time.

This article will give you some useful information about short-term lending - then you can draw your own conclusions.

What, exactly, are the costs?

For your first advance, Cash Doctors charges 1 cent. For example:

Once you’re a member, Cash Doctors charges a $45 draw-down fee each time you take out an advance (regardless of the amount) plus a $30 weekly management fee (for each week you have the advance - for a maximum of 45 days). For example:

Below are a some examples to help you understand what a short-term advance is, the costs and when it’s appropriate to be used.

Example 1: We’re like a taxi - convenient but only for occasional use.

Imagine you’ve scored a job interview.

You don’t have a car but you have these two choices:

1. Walk an hour to the bus stop, take a bus for an hour, wait 30 minutes for another bus, take that bus for 20 minutes and then walk 30 minutes to the office. It will cost you $9.80 and take you 3.5 hours.
2. Take a $45 taxi and it will take you 20 minutes.

Sometimes it’s going to be worth paying a little extra.

Then consider, if you’re coming home after a big night and it’s 3am, the first choice doesn’t always exist.

In these cases, convenience is critical. A taxi is right there when you need it and it gets you there quickly. It is more expensive but you shouldn’t catch a taxi to work everyday or use it for long trips. It’s for occasional, short journeys and only when you really need it.

A cash advance is the same. You use it occasionally, only for a few days or weeks but you pay extra for speed and convenience.

Here are some similar examples...

Example 2: Cheaper than mortgages and personal loans.

True.

Total costs are a function of charges and time. If you look at a daily or hourly rate, it can seem relatively high, but if it’s only charged for a specific short time like 45 days, the total cost stays low.

This is very simple but seldom appreciated.

As a percentage of principal, the total amount you ultimately repay for our cash advance is less than that of bank loans and personal loans.

A bank may only charge you 15% interest on your loan but the ultimate repayment on a $8,000 personal loan is $12,146. If you have a mortgage, you end up paying back nearly double what you first borrowed.

Example 3: Why don’t I just use a credit card?

Credit cards are great if you have the need to occasionally go over budget - and you repay the principal. The problem is no one does this. There’s always something better to spend your money on than repaying credit card principal. Plus if you have extra credit available it’s so tempting to use it all up - and continue to pay interest-only for forever, and ever and ever.

The credit card providers know this. They want you to be stuck in debt for years - ideally forever.

People like to borrow from us because they repay on a fixed schedule, over a short term, and can only borrow small amounts. There’s no long-term commitment.

Let’s take a look at the costs...

It’s a real eye opener when you compare cash advance cost to credit card costs - and their usage trends.

Scenario: Borrow $3000 over a 1 year period.

The cost of using cash advances is on average slightly less expensive than the cost of a credit card. If we look at how the two products behave, the good thing about cash advances is that you repay fees plus principal whereas with credit cards you can find yourself with a big debt (the principal) left to repay at the end of the year.

Understanding the APR. Why it’s useless for assessing the cost of short-term loans...

The main criticism of the short-term lending industry has to do with the costs - especially when they are compared to what traditional lenders charge for larger loans over longer terms.

The use of the APR (annual percentage rate) as a pricing comparison tool perpetuates this.

Critics often quote the APR of short-term loans as being in excess of 400%. When compared with the APR charged by mainstream credit providers (7-20%), it would be easy to conclude that the fees of short-term credit providers are “excessive” and therefore resulting in abnormal profits.

But this comparison misses some key points...

• Total costs is a function of charges and time. An ethical short-term lender like Cash Doctors will only charge for days or weeks so total costs are capped at 45 days.
• Mainstream credit providers lend large amounts of credit over long periods of time. They are able to apply a much smaller APR while still generating sufficient revenue to deliver a viable service.
• Short-term credit providers, such as ourselves, lend just a few hundred dollars for a few days or weeks. Expressing our costs in terms of an APR when our cash advances are only for the short term doesn’t help communicate costs clearly or help customers make a decision. This type of product should never be offered for more than a few weeks.
• In Cash Doctors’ case, the average advance is $420 over just 21 days. The costs of administering advances of such small amounts of credit over such short deadlines are significantly higher than that of banks. Even with our responsible lending practices, in order to cover the costs of administering the advance, a larger APR is required to be applied.
• All finance providers, regardless of whether they adopt mainstream or short-term models, incur the same operating costs and are competing in the same markets for labour, rental, capital and other inputs. Comparing the costs of short-term lenders, lending a few hundred dollars for years, via an APR is not a legitimate ‘like with like’ comparison - the operating models are simply too different.

If Cash Doctors charged a mainstream unsecured loan interest rate of 12% APR on a $200 cash advance over an average advance period of 21 days, $1.58 of revenue would be generated. This doesn’t even cover the cost of transferring the advance to the customer. Then we have to pay our staff, bills, rent etc - just like mainstream banks.

Interest rate caps. How short-term lending is regulated in Australia.

APR is not used to assess short-term lending because cash advances are an entirely different product. Bank loans run for years, cash advances run for days or weeks.

Instead, short-term lenders adhere to a rate cap. There is a rate cap in place for all finance providers in the states of ACT, NSW, QLD and VIC, which is set at 48%. Depending on which state, the rate cap calculation usually takes into account the length of the loan, the amount of credit offered, and the length and amount of repayments. It ensures that lenders do not over-charge for loans.

Cash Doctors provides cash advances under a ‘continuing credit contract’, which at all times operates under the 48% rate cap.

The elephant in the room. What happens if people can’t repay on time?

Have you ever heard stories about people owing thousands of dollars after borrowing $200?

This cannot happen at Cash Doctors.

For the very small minority of people who run into repayment difficulties, charges are frozen on the account after a further 45 days.

Cash Doctors uses a fee structure that results in a slight loss on overdue accounts. This incentivises Cash Doctors to lend the right amounts to people who can comfortably repay and hence approve just 17% of our applications.

Profiting from late fees is inconsistent with our company mission and values.

It’s in Cash Doctors’ best interest for people to repay on time. Cash Doctors does not allow advances to be rolled-over, as we understand how rolling-over loans can easily contribute to a compounding ‘debt spiral’ and believe the product should be confined to its short-term purpose.

So what’s the worst case scenario?

The worst case scenario at Cash Doctors is very fair. If a member borrows $600 for the maximum possible period of 45 days then falls overdue and is unwilling to work out a repayment plan, the most they can owe is $1,200.

We not only cap fees after 45 days, but also guarantee their repayment will never exceed $1,200.

A predatory short-term lender who allows the interest to continue indefinitely, rather than halting it at 45 days overdue as Cash Doctors does, can potentially end up charging a customer thousands of dollars - after they borrowed just a few hundred. This is a little bit like taking a taxi from Brisbane to Sydney. It shouldn’t happen.

Who uses Cash Doctors?

Cash Doctors’ members are financially literate, employed, and are able to make fully informed decisions about their financial needs and commitments. They want alternatives to being tied into a long-term financial product. They want flexibility without the temptation of over-spending, which is a key feature of credit cards.

Cash Doctors only lends to permanently employed Australians (receiving sick and holiday pay). The average salary of a member is $44,500 net - yes NET. The average age is 32 and 57% have clear credit ratings. Ordinary hard-working Australians use Cash Doctors. They tend to work in administration, accounts, sales, education, IT, recruitment, insurance, customer service and health. While nearly half of Cash Doctors’ members are eligible for mainstream finance - they just prefer this style of credit to manage their finances.

Cash Doctors’ member profile is totally different from the 2002 CLCV (Consumer Law Centre Victoria) report1 - in which they discovered the average salary of a cash advance user was $24,500. It is often thought that people using short-term lenders are on government support and can’t hold a permanent job. Cash Doctors’ members are in fact the opposite:

• 42% are homeowners.
• 23.9% have a TAFE qualification, 24.3% have a university degree and 6.5% have postgraduate degrees.
• 100% have a steady income (permanent full-time or part-time employed) and an active bank account

Cash Doctors does not lend to the unemployed, pensioners, bankrupts, contractors, self-employed or those whose primary source of income is Government support (Centerlink).

Why Cash Doctors is more responsible...

Cash Doctors’ business model is driven by social responsibility. It’s about treating people fairly and offering very simple, clear financial solutions. A responsible lending model means that great care is taken to ensure that the only people who borrow are those who can comfortably afford to repay. Traditionally, short-term lenders would lend to financially unstable customers and then watch their repayment amounts spiral out of control. They basically lend too much money, to anyone who applied and make their money by collecting late fees. We have a long-term business view with a customer focus. We don’t support chronic or habitual borrowing.

Borrowing from Cash Doctors is nothing like borrowing from other lenders. We take out the guess work and we don’t waste your time - and we don’t want you to stay in debt.

In our efficient approval process, we use various formulas to help solve your problem quickly. We take care of you - a little bit like a real doctor does. We’ll give you the amount you need after performing a credit check and other responsible lending checks. We use technically sophisticated data-driven approval measures to carefully assess your capacity to repay so you don’t have trouble repaying and are delighted with the outcome.

This is a radically new way of borrowing money

The financial services industry needs a big shake up.

People are used to getting a bunch of paperwork together, driving in traffic, getting a park, queueing up, submitting documents and waiting a few days to get an answer - then they get declined in the end.

But there’s another way...

With Cash Doctors all you do is pick up your mobile phone or jump on your computer and apply in 5 minutes. You get an answer right there in that web session.

We ask the right questions and crunch a lot of data so we can make sure you have an appropriate solution. This means no waiting around and wasting time in face-to-face meetings with your bank manager.

The best part is if it’s your first time, you get paid within 60 minutes. Once you’re a member, just log in and make a request and you’re paid in seconds, 24/7, straight onto your Cash Doctors card.

We provide relief from occasional cash flow hurdles - but also relief from getting into trouble and other bad practices. You can only borrow an appropriate amount for a short period of time. Cash Doctors won’t take you for a long taxi ride.

It’s a drive-through for funds - in one minute, out the next.

References

In this section