Debt-stressed home owners and renters are increasingly turning to alternative lenders offering so-called "payday" loans and consumer leases, as falling property prices plunge more households into negative equity and banks crack down on credit.

Key points: Payday lenders are growing faster than banks as mainstream credit tightens

Ease of access to online lenders is pushing households into risky debt situations

There are calls for tighter regulation of the burgeoning sector

A combination of cost of living pressures outstripping CPI, stagnant wages growth and rising levels of mortgage stress is being blamed for putting immense pressure on homeowners, with Australia's household debt to disposable income levels hitting record highs.

After increased scrutiny and accusations of irresponsible lending were levelled by the Hayne Royal Commission, banks have pulled back on new finance and tightened credit — something experts said was having the unintended consequences of pushing households into often riskier forms of credit offered by non-bank lenders.

Short- to medium-term credit of up to $5,000 and car loans can be easily accessed through online platforms and mobile phone applications, with providers promoting same-day loan approvals.

Experts said it was a dangerous situation for people struggling with financial problems.

"The online tool, the app, that's a really important part of the story because a few years ago there was almost nobody offering apps for credit," Digital Finance Analytics data scientist and banking analyst Martin North said.

"These days, a lot of people can actually get credit online, and once you've got into the online environment you've then got much more flexibility to flog other products, often without much visibility."

Loan left single mother owing double

Single mother Belinda Fox from Albany in southern WA took out a $175 payday loan to make ends meet for a few weeks after her Centrelink payments suddenly stopped when her son turned eight.

The payday lender approved the loan within a day and did not ask to see her credit history.

"I just wanted to have everything nice for my son, I want to be a good mum to my son and I pretty much didn't eat full meals, I made sure my son did and then I'd eat his scraps," she said.

"I knew I couldn't get a loan anywhere physically in Albany, so I thought I'd try online.

"It was super easy, I just clicked a few buttons and they said they'd get back to me within 24 hours, and they did. They said the loan had been approved and the money was in my bank."

Ms Fox chose to repay the debt in four instalments, meaning the total loan amount doubled to $360.

She quickly found she could not keep on top of the repayments and went to a financial counsellor for help.

"Doing without for the short-term isn't as hard as doing without long-term, because every time I've had to make a repayment, I've had to go without," she said.

"So I should have just gone without for the few weeks, rather than having to go another six months through hard times.

"The risks should be laid out a lot more. The interest shouldn't be so high perhaps for people who actually need a loan and intend on paying it. It seems a bit silly the repayments are so high."

Payday lenders growing faster than the banks

Since April 2016, 3 million additional payday loans totalling $1.85 billion have been written by about 1.6 million Australian households, according to research conducted by Digital Finance Analytics.

The consultancy — which conducts research for a range of companies and regulatory bodies including the Reserve Bank of Australia and the Australian Securities and Investments Commission — found within that time about one-fifth of the loans, or about 332,000 households, were new payday borrowers.

"They're growing a lot faster than the banks at the moment and I think that's quite concerning, because the regulatory framework within that sector of the market is a lot lower," Mr North said.

"Households have significant financial pressures on them, whether they are owners or renters, and that financial pressure has been getting tighter and tighter in recent years.

"Even when people are working full-time in multiple jobs, they still don't have enough income coming in to support what they want to do.

"So what people tend to do is turn to alternative credit offerings to try and bridge some of those short-term credit problems.

"The trouble is they end up digging a bigger hole for themselves because they end up borrowing from particular providers, they repay that one and then go elsewhere, and over time the spiral of debt just grows."

The rise of medium-sized loans

Among the major non-bank lenders, there has been a shift away from small loans below $2,000 to medium-sized cash advances, also known as medium amount cash contracts or MACCs, of between $2,000 and $5,000.

"What they've done is change their focus to people who are a bit more affluent than Centrelink recipients, but also people who are struggling with their finances," Mr North said.

"So there's a whole new sector of the economy that are being offered these loans.

"Households are needing more than very short-term, payday-type lending, they actually need longer-term credit just to keep their household finances afloat."

Example of a MACC loan: $3,000 for 18 months

$400 establishment fee

Other fees and interest: $1379.06

Total: $4779.06

Almost 60 per cent more than the original loan amount Source: Nifty Loans

One of the largest non-bank providers, Cash Converters, reported a 154.6 per cent increase in its MACC loan book over the past financial year, while Money3 stated in its annual report a focus on building up its automotive business "through medium-term secured loans".

Credit Corp's Wallet Wizard reported mainstream lenders tightening their lending criteria was driving more consumers into its segment of the market.

"If you can't easily and profitably lend people money on a short-term credit contract … you change the game. [It becomes] 'how about I loan you more over a longer time?'" Motley Fool's director of research in Australia Scott Phillips said.

"You're in a way upselling those customers.

"If the SACCs [short amount cash contracts] aren't a profitable and accessible option for the lender or the borrower, you simply push people to take the next available option."

Mr Phillips said tightening credit at the banks would have unintended consequences.

"We're seeing the big banks pull out of some of those less mainstream credit products, so all that's left is to go to those providers of consumer leases or payday loans", he said.

"There is so much more scrutiny on the big guys when they're making loans so they're going to be risk averse, a bit gun shy, when it comes to making loans to people who maybe otherwise would have got one, but in this new world probably won't get one.

"And that will push them into the hands of smaller, less known and maybe, arguably, unscrupulous players."

Battling a debt spiral of payday loans

Anglicare WA financial counsellor Kevan O'Hare, who is at the coalface of the problem in Perth's northern suburbs, said an increasing number of clients walking into his office were caught in a debt spiral of payday loans.

"I see people who are financially stuck. They work their way into payday lenders and then they come to me once they've been through two, three, four payday lenders," he said.

"It could be anyone. It could be someone with a really high-paying job who has allowed their debt to spiral out of control, and it can be a single mum on Centrelink benefits who is struggling to balance the budget at the end of the week.

"Almost everyone who takes out a payday loan will find themselves in that debt cycle where they just keep taking out more payday loans until they can't physically get anymore."

Mr O'Hare said many of his clients were mortgage-stressed, leading them to try to borrow their way out of debt and in some instances even take out a cash advance to meet their home loan repayments.

"By and large a lot of these people didn't have a big deposit, so they're in negative equity right now. They might have lost their job and … their income might have reduced by two-thirds in some instances," he said.

"They work their way through their credit card, get a balance transfer credit card, get a debt consolidation loan … and just to meet their day-to-day living expenses they're relying on payday lenders."

Mr O'Hare said his biggest concern was the ease of access offered to this type of lending through websites and mobile phone applications.

"The fact you can apply for a payday loan on a smartphone without any real background checks … they find themselves fairly quickly spiralling out of control," he said.

Senate inquiry to hand down findings

A Senate inquiry into credit and financial services targeted towards Australians at risk of financial hardship was launched in December, to investigate the impact on individuals and communities from services offered by companies including payday lenders and consumer lease providers.

It is expected to hand down its findings on Friday and follows a similar inquiry in 2016 into SACCs which made 24 recommendations.

They included limiting payday loan or consumer lease repayments to 10 per cent of a consumer's net income, and introducing a cap on leases equal to the base price of the goods plus 4-per-cent-a-month interest.

But three years since the recommendations were handed down, legislation is yet to pass Parliament.

Labor's Madeline King introduced a private member's bill into the House of Representatives on Monday in a bid to get the Federal Government to act on the draft legislation it released in October 2017.

The National Credit Providers Association (NCPA), which represents non-bank lenders, supported 22 of the 24 recommendations from the 2016 inquiry.

But it did not back a key push to prevent lenders from issuing loans where repayments would exceed more than 10 per cent of a customer's income.

"The things we put in place back in 2013 was a 20 per cent protected earnings amount [and] responsible lending obligations, where people are not allowed to be given a loan if more than 20 per cent of their income is used to repay that loan," NCPA chairman Rob Bryant said.

"They're caps on the amount that could be charged. So there's none of this debt spiral that happened.

"Yes, it happened prior to 2010 and 2013, and it can still happen in consumer leases and other unregulated products."

Non-bank lenders 'sick of being treated as a pariah'

Mr Bryant disputed research showing growth in the non-banking lending market, but acknowledged businesses were now focusing on medium-sized loans.

"We have the actual raw data collected by the independent group Core Data Analytics, which the banks use as well, which clearly demonstrates no such thing as that ridiculous number that's been bandied around," he said.

"If they were considering the unregulated market as well, because demand is there and the unregulated market is growing quickly, there have been groups identified throughout this Senate inquiry that are growing.

"There is growth in that [medium-sized loans] space, yes, and you get sick of being treated as a pariah.

"The SACC lending is the convenient monster, even though it's the most regulated of all the credit sectors and it's working really well.

"I think it would be a shame if everybody moves away from it."

Demand for a fix with no loopholes

The Consumer Action Law Centre (CALC) in Melbourne receives calls for help from thousands of debt-stressed people each year.

It said the Government's inaction on introducing tougher legislation for non-bank lenders had continued to cause harm.

"What we've seen in recent years is the market expanded to be more mainstream, we've seen some very savvy marketing that targets the younger demographic, particularly younger males," CALC director of policy Katherine Temple said.

"I've seen some companies move into the medium amount lending.

"What we really need is a solution that covers all forms of fringe lending so we're not creating harmful loopholes.

"[Because] what we've seen from this industry time and time again is they will exploit loopholes wherever they exist, and they will move into the least regulated area."