Before applying for a short term payday loan, it is important to consider how this will affect your credit score and future lending applications.
What is a Payday Loan?
As the name suggests, payday loans are designed to be paid back, with interest in your next wage. They offer the ability to borrow between £100 – £1000. Traditionally they would be paid with interest in a lump sum, on payday. These days the loan is slightly more flexible and the repayment terms can range from thirty days to six months. A short term payday loan is ideal for when you are strapped for cash due to an unexpected payment. Perhaps your car has failed its MOT or your boiler has broken down in winter. Whilst they are useful in emergencies. payday loans are often expensive to repay and the financial consequence of missing a repayment can be extremely high.
Can I get a Payday Loan If I Have a Poor Credit Score?
Generally speaking, yes! Payday loans are for people with poor credit history in mind. That being said, every application will be reviewed independently so there is no guarantee that yours will be accepted.
Will a Payday Loan Appear On My Credit Report?
Yes. All borrowing will appear on your credit history and payday loans are not an exemption to this rule. Even after you have paid the loan back in full, future lenders may be able to see the details for up to six years. It is important to consider this when you are applying, especially if you have used payday loans in the past.
Some lenders may look negatively on the repeated use of payday loans and refuse or limit your future applications. Even applying for a loan will leave a mark on your report that lenders will see. This could affect applications for larger sums of money for example credit card or mortgages applications.
How Will Taking Out a Payday Loan Affect My Credit Score?
Taking out a payday loan could actually help you build or improve your credit score if paid back in full and on time. Sticking to the terms of your agreement demonstrates to future lenders that you are a reliable borrower. However, it is important that you only apply for this type of loan if you are confident you can stick to the agreed repayment terms. If you miss a repayment, not only will you be charged late payment fees and interest, your credit score will be negatively impacted.
A payday loan can be a great helping hand if you are caught off guard by an unexpected payment. If managed carefully, they can even help you boost your credit score. To avoid a negative impact on your credit score and future borrowing opportunities it is important that you:
- Payback your loan in full and on time.
- Do your research before applying and do not submit multiple applications to various potential lenders.
- Don’t rely on the use of payday loans or use them regularly.