Great solution or recipe for disaster? Automatic loan machines spark debate

Automatic loan machines popping up across Australia have sparked cause for concern with fears those in disadvantaged communities risk falling into a cycle of crippling debt. 

Resembling an ATM, the CashnGo machine only requires ID and bank account information to issue a loan between $50 and $2000, with a three month pay-back period at an interest rate of about 20 per cent.

Located in some of the most disadvantaged communities in New South Wales where weekly incomes are 30 per cent lower than the national average, the machines are relatively easy to use and are meant to assist those in financial hardship.

However, Financial Counselling Australia Chief Executive Officer Fiona Guthrie, has warned they are not the best option for those already in debt.

“These machines are a recipe for disaster. The whole business model for these instant loans is to trap people into more debt,” she told Starts at 60.

“If you have debts you can’t pay, getting more debt is not a long term solution.”

CashnGo Australia operates as a ASIC licensed lender and currently follows all regulations set out by the government including that if a customer doesn’t pay their loan on time they are not charged more than the original borrowed amount, also known as a debt spiral cap.

Speaking with Starts at 60 on Tuesday, a spokesperson for the company said they are committed to protecting consumers and will only approve customers for loans that they can repay.

“Our aim is to protect consumers from unfair lending practices by providing an alternative to the predatory nature of the traditional lending market and its ability to add to the financial difficulties of people on low income, whilst providing access to funds they so desperately need,” they said.

“We provide access to small loans through our stringent and government regulated lending practices which are in place to ensure that people who apply for loans can afford to repay them and do not end up in a debt spiral.”

However, this has not convinced Guthrie who said there are other alternatives for those facing financial problems.

“Financial counsellors see many clients who are trapped by payday loans. The problem is the combination of factors: high cost, short term to repay and targeted to people on low, fixed incomes,” she said.

“You almost certainly will have better options. Banks, utilities and telcos all have legal obligations to work with their customers to provide what is called ‘financial hardship’ options. There are also No Interest Loans for things like household goods available from some community organisations.

“And finally, you can talk to a free and independent financial counsellor by ringing the National Debt Helpline on 1800 007 007.”

There are currently three CashnGo machines in the country as part of a trial for the company.

What are your thoughts? Do you think the loan ATM machines are a good idea?

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.