If you need money, you can always opt for the hugely popular payday loans. However, you must know how the loans will affect your credit score and future loan taking abilities. If you have bad credit, you will face difficulty getting loans for your purchases and will end up paying inflated interest rates.
The insurance premiums will also be higher, and you may face difficulty securing a job or getting an apartment on rent. Some businesses even run credit checks on prospective employees. To avoid any untoward consequences, one must understand the pros and cons before taking out the same day online payday loan. Apply now
What is a payday loan?
A payday loan is a short-term loan that has higher interest rates. These loans are easy to obtain and fast as the borrower needs to show only a working bank account, ID, and proof of income. Since no credit check is required, the payday loans are an attractive proposition for people with bad credit. However, the loans are a tad risky as it is difficult to pay back within the time allotted. As per financial experts, nearly 80% of the borrowers default or renew their payday loans.
Payday loans thrive on the repeat borrowers, but the rollover loans can lead the borrowers into a debt trap. The interest piles on, and the loan becomes less manageable. The majority of the borrowers can only pay back 5% of their loan within the stipulated time.
Does a payday loan impact my credit rating?
Applying for a payday loan will not impact your credit score as the lenders do not run a credit check. Making the repayments on time will not improve the credit score either as payday loan details are never reported to the credit bureaus.
Even if you manage to pay back the loan within the stipulated time, it will neither help nor hurt the credit score. Most borrowers plan to pay back the loan within the given time, but factors like insufficient income and unexpected costs prevent them from paying back in time. Defaulting on a payday loan can negatively impact your credit score if the loan gets reported to the credit bureau.
The bulk of the payday loan lenders will ask for a post-dated check for the amount you borrowed. However, if you do not have enough money in your account on the day the check is supposed to be produced in the bank, it will result in a bounced check.
If the bounced check is not repaid, the bank may close the account, send it to an agency for collections, and the bank may report the incident to the credit bureau. Although payday loans hardly directly impact the credit scores, these loans can affect the score by creating a situation whereby you default on credit cards or other loans.
So payday loans are an excellent option for people with poor credit, but you can avoid any negative repercussions by paying back the loan on time. A delay in repaying your payday loan or not maintaining the required balance in your account on the day of repayment will make you ineligible for future payday loans.